[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]



                                                                    
   FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2009

_______________________________________________________________________

                                HEARINGS

                                BEFORE A

                           SUBCOMMITTEE OF THE

                       COMMITTEE ON APPROPRIATIONS

                         HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS
                             SECOND SESSION

                                ________

       SUBCOMMITTEE ON FINANCIAL SERVICES AND GENERAL GOVERNMENT 
                             APPROPRIATIONS
                  JOSE'1 E. SERRANO, New York, Chairman
 CAROLYN C. KILPATRICK, Michigan         RALPH REGULA, Ohio
 C.A. ``DUTCH'' RUPPERSBERGER, Maryland  MARK STEVEN KIRK, Illinois
 DEBBIE WASSERMAN SCHULTZ, Florida       RODNEY ALEXANDER, Louisiana
 PETER J. VISCLOSKY, Indiana             VIRGIL H. GOODE, Jr., Virginia
 ROBERT E. ``BUD'' CRAMER, Jr., Alabama  JO BONNER, Alabama
 MAURICE D. HINCHEY, New York
 ADAM SCHIFF, California            
                                    
     
 NOTE: Under Committee Rules, Mr. Obey, as Chairman of the Full 
Committee, and Mr. Lewis, as Ranking Minority Member of the Full 
Committee, are authorized to sit as Members of all Subcommittees.
      Dale Oak, Bob Bonner, Karyn Kendall, and Francisco Carrillo,
                           Subcommittee Staff

                                ________

                                 PART 5
                                                                   Page
 Election Administration..........................................    1
 Consumer Protection in Financial Services: Subprime Lending and 
Other Financial Activities........................................  239
 Public Witness Testimony.........................................  387

                                   S

                                ________

                     U.S. GOVERNMENT PRINTING OFFICE
 42-322                     WASHINGTON : 2008




















                                  COMMITTEE ON APPROPRIATIONS

                   DAVID R. OBEY, Wisconsin, Chairman

 JOHN P. MURTHA, Pennsylvania               JERRY LEWIS, California
 NORMAN D. DICKS, Washington                C. W. BILL YOUNG, Florida
 ALAN B. MOLLOHAN, West Virginia            RALPH REGULA, Ohio  
 MARCY KAPTUR, Ohio                         HAROLD ROGERS, Kentucky                  
 PETER J. VISCLOSKY, Indiana                FRANK R. WOLF, Virginia      
 NITA M. LOWEY, New York                    JAMES T. WALSH, New York    
 JOSE'1 E. SERRANO, New York                DAVID L. HOBSON, Ohio
 ROSA L. DeLAURO, Connecticut               JOE KNOLLENBERG, Michigan
 JAMES P. MORAN, Virginia                   JACK KINGSTON, Georgia
 JOHN W. OLVER, Massachusetts               RODNEY P. FRELINGHUYSEN, New Jersey
 ED PASTOR, Arizona                         TODD TIAHRT, Kansas
 DAVID E. PRICE, North Carolina             ZACH WAMP, Tennessee
 CHET EDWARDS, Texas                        TOM LATHAM, Iowa
 ROBERT E. ``BUD'' CRAMER, Jr., Alabama     ROBERT B. ADERHOLT, Alabama
 PATRICK J. KENNEDY, Rhode Island           JO ANN EMERSON, Missouri
 MAURICE D. HINCHEY, New York               KAY GRANGER, Texas
 LUCILLE ROYBAL-ALLARD, California          JOHN E. PETERSON, Pennsylvania
 SAM FARR, California                       VIRGIL H. GOODE, Jr., Virginia
 JESSE L. JACKSON, Jr., Illinois            RAY LaHOOD, Illinois
 CAROLYN C. KILPATRICK, Michigan            DAVE WELDON, Florida
 ALLEN BOYD, Florida                        MICHAEL K. SIMPSON, Idaho
 CHAKA FATTAH, Pennsylvania                 JOHN ABNEY CULBERSON, Texas
 STEVEN R. ROTHMAN, New Jersey              MARK STEVEN KIRK, Illinois
 SANFORD D. BISHOP, Jr., Georgia            ANDER CRENSHAW, Florida
 MARION BERRY, Arkansas                     DENNIS R. REHBERG, Montana
 BARBARA LEE, California                    JOHN R. CARTER, Texas
 TOM UDALL, New Mexico                      RODNEY ALEXANDER, Louisiana
 ADAM SCHIFF, California                    KEN CALVERT, California
 MICHAEL HONDA, California                  JO BONNER, Alabama
 BETTY McCOLLUM, Minnesota
 STEVE ISRAEL, New York
 TIM RYAN, Ohio
 C.A. ``DUTCH'' RUPPERSBERGER, Maryland
 BEN CHANDLER, Kentucky
 DEBBIE WASSERMAN SCHULTZ, Florida
 CIRO RODRIGUEZ, Texas              
                    
                  Rob Nabors, Clerk and Staff Director

                                  (ii)











 
   FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2009

                              ----------                           
                              
                                      Wednesday, February 27, 2008.

                        ELECTION ADMINISTRATION

                               WITNESSES

                                PANEL 1

HON. ROSEMARY RODRIGUEZ, CHAIR, ELECTION ASSISTANCE COMMISSION
HON. CAROLINE HUNTER, VICE CHAIR, ELECTION ASSISTANCE COMMISSION
HON. GRACIA HILLMAN, COMMISSIONER, ELECTION ASSISTANCE COMMISSION
HON. DONETTA D. DAVIDSON, COMMISSIONER, ELECTION ASSISTANCE COMMISSION

                                PANEL 2

WENDY, WEISER, DEPUTY DIRECTOR OF THE DEMOCRACY PROGRAM, BRENNAN CENTER
SUSAN K. URAHN, PH.D., MANAGING DIRECTOR, STATE POLICY INITIATIVES, PEW 
    CHARITABLE TRUSTS
ARTURO VARGAS, EXECUTIVE DIRECTOR, NATIONAL ASSOCIATION OF LATINO 
    ELECTED AND APPOINTED OFFICIALS EDUCATIONAL FUND
JEFF MATTHEWS, DIRECTOR, STARK COUNTY, OHIO, BOARD OF ELECTIONS

                  Chairman Serrano's Opening Statement

    Mr. Serrano. The Subcommittee will come to order.
    I welcome you to this hearing of the Financial Services and 
General Government Subcommittee. Today's hearing is on election 
administration and will focus on the work we need to do to 
ensure that elections are secure, reliable, and accessible to 
all voters.
    This hearing is particularly timely, since we are well into 
the 2008 primary season, and a little more than eight months 
away from the November general election. We are anxious to hear 
what our witnesses will say about how the primary elections 
have proceeded and what issues or concerns have arisen. Will 
these primary elections be indicators of election 
administration successes or failures in the general election? 
What are the potential problems that we may face in the general 
election?
    We also want to use this hearing to learn more about the 
issues facing the Election Assistance Commission, including the 
funding requirements that will help the EAC meet its mission.
    This is a small agency with a very big responsibility. The 
EAC has an important role in giving guidance and information, 
providing regulatory authority over the National Voter 
Registration Act, and directing federal resources to support 
the conduct of elections at the state and local levels.
    More than $3 billion have been appropriated over the past 
six years to improve election administration and voting 
systems. Even with this commitment of federal resources, states 
continue to have critical unmet needs relating to ensuring that 
their elections run smoothly. The need is not more apparent 
than in the case of providing states with secure, reliable, and 
accessible voting systems.
    Touch screen, direct recording, electronic voting machines 
were purchased by many states using money they received through 
Help America Vote Act programs. These machines were touted as 
the answer to election officials' prayers. Indeed, they offer 
the important benefits of accessibility and ease of use. But, 
unfortunately, concerns have been raised about the reliability 
and security of these machines.
    Many states and their voters have lost confidence in them. 
Some states are reviewing their voting system requirements and 
are scrambling to modify or replace their systems to increase 
public confidence. It may be fair to say that no voting system 
is going to be 100 percent perfect, especially considering 
human factors that go into operating our polling places.
    However, we should continue to strive for an election 
process that has a minimum of confusion and error and a maximum 
of accurate results. Finally, I strongly believe that the often 
intense debate over election issues is due to the passion we 
share when it comes to protecting our democratic process and 
guaranteeing the right of every individual to cast a ballot in 
a fair, open, and honest election.
    Our goal should be to ensure that we count every vote and 
make every vote count. I hope this hearing will help us to 
understand better how we can be more helpful to election 
officials in meeting that goal.
    Today, we welcome several witnesses who come before us to 
share their knowledge on election matters. On our first panel 
we have, from the Election Assistance Commission, Rosemary 
Rodriguez, the Chair of the Commission, as well as 
Commissioners Caroline Hunter, Gracia Hillman, and Donetta 
Davidson.
    On our second panel we will have Wendy Weiser of the 
Democracy Program at NYU School of Law's Brennan Center for 
Justice; Susan K. Urahn, Managing Director for State Policy 
Initiatives at the Pew Charitable Trusts; Arturo Vargas, 
Executive Director of the National Association of Latino 
Elected and Appointed Officials Educational Fund; and Jeff 
Matthews, Director of the Stark County, Ohio, Elections Board. 
And we welcome all of our guests.
    We have a lot of material to cover and many people to hear 
from during this hearing, so I ask that each witness strictly--
strictly--did I say that enough? Strictly observe a five-minute 
maximum for their opening statements. Your complete written 
statements will be submitted for the record.
    Also, I just want to remind members of the procedures we 
established last year for questioning witnesses. We will 
observe the five-minute rule, except for Mr. Regula--anything 
he wants. I will recognize those members who are in the room at 
the time the hearing begins by seniority. Those members who 
enter the room after the hearing begins will be recognized in 
the order in which they arrived. I also intend to alternate 
between Democratic and Republican sides.
    We have two new members of the Committee, and I will have 
Mr. Regula mention their names. And with that, I turn to my 
trusted colleague. And I do not know how my party is going to 
feel about this, but on the list of people I wanted to retire 
from your side, you were not on my list. [Laughter.]
    You were not on my list.
    Mr. Regula. I appreciate that.
    Mr. Serrano. You are one of the nicest people I know, and 
it is a pleasure working with you.

                     Mr. Regula's Opening Statement

    Mr. Regula. Nice way to start the day. Thank you, Mr. 
Chairman. I think you have done a great job of summarizing the 
challenge that confronts us in this bill, and so I do not have 
much to add. I do want to welcome Mr. Bonner, who is a new 
member of this Committee. And I think you will find it very 
interesting and some rather challenging policy decisions that 
we have to make, starting with the one today.
    I would like to welcome also our witnesses from the 
Election Assistance Commission. You know, elections are such a 
great part of the American way that it is so important that 
people have confidence in the election process. And certainly 
voting is the method by which the American people select their 
representatives in government. And if democracy is going to 
thrive, we have to--believe in the integrity of the voting 
system, and that every vote counts.
     We have had a couple of elections back home where maybe it 
was decided by one or two votes, and people say to me, ``By 
golly, my vote did make a difference.'' You know, it is easy to 
think, when there are millions of people voting, that your vote 
does not matter, but once in a while you see an election where 
it hinges on one or two votes. And, therefore, it is important 
that people believe in the integrity of the system, and also 
that they participate. So that is what we are trying to do here 
is to create an environment where people will participate.
    It is amazing, there are over 100,000 polling places in our 
election system. And that is the challenge, to ensure that 
there is integrity in each of these 100,000, because for the 
people that use them that is their way to participate in our 
democracy. I look forward to your testimony and learning how 
you can, have been, and prospectively want to help maintain the 
integrity of the election process, and how we might improve it.
    And, Mr. Chairman, it is always a privilege to work with 
you. We have worked well together on issues last year, and I 
know that we will again this year. And it is kind of 
interesting--it is a sharp contrast. He is a big city boy from 
New York City, and I am a farm boy from Ohio. So you cannot get 
much difference in the way of background contrast, but we are 
here as a team. And we have done what everybody says should 
happen, and that is that we get along with each other and work 
together. So I look forward to the testimony.
    Mr. Serrano. Thank you. It has been an experience for me. I 
came to Congress thinking all food came from a supermarket. 
[Laughter.]
    And it was wrapped there, you know, in cellophane, and so 
on.
    I want to welcome Mr. Ruppersberger and Ms. Kilpatrick. 
Just to remind you, initially I said that we would recognize 
people in the order that they came into the room for 
questioning.
    And, you know, when I look at this group before us, this 
panel, I am always tempted to ask the question I have been 
asking for 34 years in public office in New York. But I do not 
know if you do ballot placement. You know, New York has--the 
U.S. Senate runs up at the top of the ballot. Then, you have 
all of the local judges who cover the whole county of the Bronx 
come next. Then comes the member of Congress.
    And I have always said, ``Why does the member of Congress 
not follow--the member of Congress follows the Senate in your 
state?'' And in New York, if you have 15 judges running, who 
are usually supported by all three parties, or four parties, 
they appear because they cover the county. These are 
statewide--Hillary or Chuck, right? These are county-wide, and 
then this is district-wide.
    So I am always 30 percent less of the vote by the time they 
get down to me. I do not know. It is a conflict of interest if 
I ask for anything special.
    Anyway, we----
    Mr. Ruppersberger. Excuse me, Mr. Chairman, but it works 
for you. You are still here. [Laughter.]
    Mr. Serrano. We should all be nice to Ms. Kilpatrick. The 
champions this year are probably going to be the Detroit Tigers 
and not the Orioles or the Yankees. But anyway.
    Our first panel is Ms. Rodriguez, Chair of the Commission. 
Then, we will recognize the Vice Chair, Ms. Hunter, followed by 
Ms. Hillman, and finally Ms. Davidson.
    Ms. Rodriguez, welcome, welcome to all of you, and please.

                     Rosemary Rodriguez's Testimony

    Ms. Rodriguez. Good morning, Chairman Serrano, Ranking 
Member Regula, and all of the Subcommittee members. Thank you 
for asking us to be here today.
    This year we will elect a new President. Millions and 
millions of voters will go to the polls in November, and 
millions of poll workers will be there to help them. Election 
officials are working hard to get ready, and let me say this: 
we must be ready for a huge turnout. If primaries are any 
indicator, the turnout will be enormous. There must be enough 
ballots, voting machines, and poll workers to serve the rush 
that will surely show up in November. A contingency plan is 
also a must, because in elections things do not always go as 
planned.
    At the EAC, we are providing tools and information to 
assist election officials. Poll workers guides, information 
about how to design a ballot, and a series of management guides 
to help them effectively manage the entire process from voting 
system security all the way through ballot tabulation.
    While election officials have a lot on their plates, the 
EAC faces challenges of its own. Congress provided $115 million 
in new funds to the states. Thank you for that. Can states use 
that to replace touch screen equipment? The Help America Vote 
Act, or HAVA, says that voting systems purchased with funds 
appropriated after 2007 must be fully accessible. What systems 
are considered accessible to individuals with disabilities?
    Mr. Chairman, as you know, the EAC does not mandate, 
endorse, or recommend one voting system over another. It is the 
spirit and intent of HAVA that the states make voting system 
decisions based upon what will best serve the individual state. 
That is why I have proposed a reversal of EAC guidance. My 
proposal asserts that it is reasonable, pursuant to the Office 
of Management and Budget Circulars, for state governing 
jurisdictions to use HAVA funds to replace voting systems 
purchased with HAVA funds, as long as such funds comply with 
HAVA.
    Our Inspector General recently released a review of EAC's 
operations and financial controls. Clearly, there are changes 
that must be made at the EAC, and the IG's report provides us 
with a roadmap to make those changes. We have already gotten 
started, but we have much to do. These challenges have not 
stopped the EAC from fulfilling some of its most important 
mandates, including launching the Federal Government's first 
voting system certification program, and issuing voluntary 
voting system guidelines.
    I am the Chair of this Commission, and I take this 
responsibility very seriously. I am very aware that what 
happens in 2008 will be on my watch. I assure you that the EAC 
will focus on its responsibilities under the law, and make sure 
that Congress and the public are fully informed about our 
activities.
    Thank you again for having us here today, for your support 
of the EAC, and for your support of the voters of America. We 
look forward to your questions.
    Mr. Serrano. Thank you.
    Ms. Hunter.

                      Caroline Hunter's Testimony

    Ms. Hunter. Thank you. Good morning, Chair Serrano, Ranking 
Member Regula, and the other Subcommittee members. Thank you 
for asking us to be with you today.
    As Chairwoman Rodriguez mentioned, one of EAC's mandates 
under the Help America Vote Act is the adoption of the 
voluntary voting system guidelines. The guidelines provide a 
set of specifications and requirements against which voting 
systems can be tested to determine if they provide all of the 
basic functionality, accessibility, and security capabilities 
required of voting systems.
    HAVA transferred this responsibility from the FEC to the 
EAC. The EAC adopted its first version in 2005, and we are in 
the beginning of the process to adopt the next iteration of the 
VVSG. HAVA clearly defines the process for adopting these 
guidelines. Our Technical Guidelines Development Committee and 
the National Institute of Standards and Technology, or NIST, 
provide EAC with an initial draft.
    Then, the EAC adopts the final version. However, the road 
to adopting a final version will include widespread input, 
public meetings, and public comments. As a matter of fact, we 
have already scheduled a series of roundtable discussions with 
a wide variety of stakeholders. All of these discussions are 
open to the public.
    The EAC has implemented a very thorough, inclusive, and 
transparent public comment process. We have already begun the 
first comment period for the initial version and provided the 
public with a very user-friendly online comment tool. At the 
end of the comment period, the EAC will consider every comment 
and issue our own draft version. At that point, there will be 
another 120-day comment period.
    Again, the public will be able to submit comments as well 
as view every comment that has been submitted, and the EAC will 
continue to work with NIST throughout this process.
    The draft guidelines are a complete rewrite of the 2005 
guidelines, intended to address the next generation of voting 
systems. They contain new and expanded material in the areas of 
reliability, quality, usability and accessibility, security, 
and testing. According to the Help America Vote Act, adoption 
of the guidelines at the state level is voluntary. However, 
states may formally adopt a VVSG, which would of course make 
these guidelines mandatory in those jurisdictions that choose 
to adopt them.
    We often get asked, ``What value do voluntary guidelines 
provide?'' The answer is simple: They provide a base level of 
conformity testing that election officials can rely on. States 
have the flexibility to apply the parts of the guidelines that 
make sense in their jurisdiction, or to not use them at all.
    The EAC is also operating the Federal Government's first 
Voting System Certification Program. And let me address two 
issues that come up frequently. One issue is vendors paying 
labs directly. That is the way the process is working at this 
moment. The vendors can choose their own labs and pay the labs 
for the cost of testing.
    The EAC is not authorized to pay the labs. Some have argued 
that the EAC should do so, and the EAC should choose the lab to 
make them a little bit more a distance between the vendor and 
the lab. But the EAC is not authorized to do so. Any funds that 
we collect must be turned over to the Treasury, unless we have 
a specific authorization, such as an authorization to 
redistribute Section 102 funds. To allow EAC to take this 
responsibility, it would require Congress to take action. As we 
have stated in the past, if Congress wishes to take this 
action, we stand ready to assist.
    The second issue I would like to bring up is that the Help 
America Vote Act did not give the EAC any authority over voting 
systems we have not certified. And at this point, as you know, 
the EAC has not certified any voting systems. So it is very 
likely that there will not be any systems in use during the 
2008 election cycle that were certified by the EAC. And so, 
therefore, we have no authority to regulate those machines.
    Thank you very much.
    Mr. Serrano. Thank you.
    Ms. Hillman.

                       Gracia Hillman's Testimony

    Ms. Hillman. Good morning, Chairman Serrano, Ranking Member 
Regula, and members of the Committee. Let me begin by saying 
that I have the distinction of having served on the Commission 
since it was established in 2003. Mr. Chairman, most local 
election officials are resource-challenged to plan and run 
their election day activities. As you know, EAC must provide a 
range of assistance to states. There are thousands of election 
officials who work the front lines in our quest for accurate, 
fair, and accessible elections.
    I will briefly describe some of our programs that provide 
assistance to their work. An urgent need is adequate numbers of 
highly trained poll workers. EAC has helped election officials 
tackle this challenge in two ways. We produced documents that 
provide effective and affordable practices for the recruitment, 
training, and retention of poll workers. These resource manuals 
are now in the hands of election officials.
    Secondly, Mr. Chairman, you and this Committee have 
recognized the value of preparing the next generation for 
community service at the polls. Since 2004, EAC has run two 
college poll worker programs and produced a guide for 
recruiting students. As a result, more than 3,000 college 
students and three dozen communities have joined the ranks of 
America's champions of democracy.
    EAC also looks forward to the opportunity to directly 
operate the mock election program. This program will provide 
opportunities for high school students to have first-hand 
experiences with a mock election process.
    Equally challenging for election officials is the effective 
design of voting materials. You mentioned a design on a ballot. 
Ballot design flaws made front page news in 2000, 2006, and 
even this year during the California primary. Last year, EAC 
produced and distributed sample materials and best practices 
for effective designs.
    More details about these materials are provided on pages 11 
and 12 of our written testimony, but let me just quickly 
mention that the materials we produced are camera-ready images. 
I mentioned earlier that election officials are resource-
challenged, and when EAC produces materials we try to do it in 
a way that is very affordable and practical for the election 
officials. The information is available in different languages, 
and we are hoping that it will serve as a useful resource to 
election officials.
    Once the election is over, Mr. Chairman, we need to know 
more than who was elected. EAC uses election day statistics to 
measure progress and improvement. We conduct a biennial 
election day survey, and the resulting reports include 
information about uniformed and overseas citizens voting, and 
registration under the National Voter Registration Act.
    As we work to fine tune our data collection efforts, we 
acknowledge the value of the $10 million in grant funding that 
was appropriated in this fiscal year. The grants will be 
awarded this spring for pilot projects in five states. Through 
this program, EAC and election officials will be able to 
explore the requirements, challenges, and solutions for 
collecting data at the precinct level. These results will be 
reported to Congress in June of 2009.
    Information about all of EAC's programs, including our 2008 
grant programs, can be found on our website at www.eac.gov. The 
Help America Vote Act calls for significant improvements. Some 
simply take more time than others. EAC recognizes that 
challenges remain.
    Mr. Chairman, I appreciate the Committee's continued 
interest in accomplishments under HAVA and your continued 
support of EAC. I also look forward to continuing this dialogue 
and answering your questions.
    Thank you.
    Mr. Serrano. Thank you.
    Ms. Davidson.

                      Donetta Davidson's Testimony

    Ms. Davidson. Good morning, Mr. Chairman Serrano, and 
Ranking Member Regula, and Subcommittee. I thank you for this 
opportunity this morning. I am a former Secretary of State, and 
my priority is providing election officials with real-world 
tools and solutions to effectively manage their elections.
    Secure, accurate, accessible elections are a complex 
process comprised of many moving parts and many moving people. 
And they only work one time a year in some instances. We hear a 
lot about certain voting systems, if they are trusted. In fact, 
any voting system--a ballot box, a direct record, or a scan 
machine--can be compromised if you have two things, if you have 
access to that system and if you have knowledge of that system.
    I have spent my entire career in elections, and some things 
never change. Whether it is a voter using a paper ballot, a 
touch screen, details matter. It is just as important to make 
sure that voting equipment is working properly as it is to have 
procedures and well-trained people to control access to and 
maintain the equipment properly.
    That is why the EAC has established the Election Management 
Guidelines Program, which provides material to election 
officials to help them manage the entire process. So far, we 
have issued information on the following topics: polling places 
and vote centers, managing change in an election office, media 
and public relations, absentee voting and voting by mail, 
acceptance testing of the equipment, voting system 
certification, voting system security, poll workers, ballot 
preparation, printing and pre-election testing, new voting 
systems, and contingency and disaster planning.
    Let me speak briefly about the importance of the 
contingency planning this year. The turnout has been high, as 
we know. And in November, we expect a very high turnout. That 
is the great problem to have. But in the meantime, we must make 
sure that our election officials are prepared, that they have 
enough ballots, they have enough poll workers, they also have 
the voting equipment that they need to make sure that the 
record number of voters can move through the polling locations.
    Management material--as we call them, Quick Starts--have 
been distributed to more than 6,000 election officials 
throughout the nation. We continue to receive requests asking 
for more when they are conducting their training sessions. In 
the near future, we will have material about serving the 
elderly and the disabled in long-term facilities, military 
voting, and how to audit the entire election process.
    The EAC also has helped election officials assist with the 
language accessibility needs. Our language accessibility 
program is a very large portion of our new website, and we have 
translated it into Spanish, as well as our voter registration 
is translated into Spanish. In May, the EAC will offer a 
glossary, just like the Spanish one, in five Asian languages, 
as well as provide website information in those languages, and 
the national form.
    All of this material from the EAC to help election 
officials manage their elections is free, at no cost, and we 
provide it to everyone. As a former election official who has 
watched the formation and the involvement and the evolution of 
HAVA very closely, the EAC is providing exactly the kind of 
assistance and support the law envisioned.
    Thank you. I look forward to your questions.
    [Clerk's note.--A single written statement was submitted 
for all four Election Assistance Commission witnesses. The 
statement follows:]


[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


    Mr. Serrano. Thank you. I thank all of you for wonderful 
testimony, notwithstanding the fact that none of you spoke 
about my ballot placement problem in New York. We are going to 
take that up locally.

                     IMPROVING ELECTION OPERATIONS

    I just asked Mr. Regula how long he has been in public 
office, and he told us 49 years. And I have been in public 
office 34. I do not think that during my lifetime I have seen 
turnouts the way I have seen already this year. And I do not 
speak for Mr. Regula, but I venture to say he probably does not 
remember in recent times having this kind of turnout. And it 
does not look like it is going to stop.
    On the Republican side, there is obvious excitement. No 
national poll indicates that anybody is going to trounce the 
other person. On the Democratic side, there is the excitement 
of possibly the first woman or the first African-American 
President. Immigrants who have joined the ranks as American 
citizens, have found out that it is important, once they get 
the citizenship, to start voting. Students have not been 
excited--this excited--in my opinion, since the anti-war 
protests that brought me into politics.
    This is all wonderful, but this is scary. Are we ready? Or 
are we going to spend two weeks after an election trying to 
find out who the next President will be? So with that in mind--
and I know you touched on some of these things, Ms. Davidson--
what are the top priorities that need to be accomplished before 
November? And how are you working with the states, what role 
are you playing with the states, to make sure that these things 
are in place?
    On one hand, we have this excitement, which is good for the 
democracy. We cannot run the risk of having people upset at how 
the results came about or in doubt as to what the result has 
been. That would, I think, just do a complete turnaround of the 
excitement and hurt the democracy in a way that it cannot hurt.
    So what needs to be done before '08, in your opinions? And 
what are you doing working with the states, and how far along 
are we in making sure that we get a good election operation, if 
you will, in November?
    Ms. Rodriguez. I will start, if it is okay.
    Mr. Serrano. Sure.
    Ms. Rodriguez. The EAC is going everywhere. We are 
scattered all over the country, meeting with election 
officials, and promoting the contingency planning aspects of 
our programs. Commissioner Hunter was in Casper, Wyoming. 
Commissioner Davidson was in Kentucky last week. We will go 
anywhere in the country to train election officials on the 
importance of contingency planning. I think that is our big 
message this year--to expect record turnout and to prepare for 
it substantively, with enough ballots, machines, and poll 
workers.
    Mr. Serrano. Now, I know that part of your role is to, as 
you deal with these issues, tell us, you know, we are going to 
do it right and everything is going to get done right. But if 
you were an advocate for better elections, what would you be 
fearful of right now looking at November? What do you think may 
not be in place that makes you nervous?
    Ms. Rodriguez. Well, again, I am from Colorado. I would--as 
an advocate, I would want my State to have the election plan in 
place. And there are several states who do not have a plan in 
place yet, because of uncertainty about the voting systems that 
their legislatures want them to use.
    Mr. Serrano. Are there many states like that?
    Ms. Rodriguez. I think there is--there is definitely a 
handful.
    Ms. Hillman. Mr. Chairman, if I might----
    Mr. Serrano. Sure.
    Ms. Hillman [continuing]. If I might just say that if I 
were an advocate, I guess there would be a couple of specific 
things. One would be how the state is implementing the 
statewide voter registration database, the voter registration 
lists, so that when people show up at the polls, or even before 
Election Day, they know that they are on the roll properly and 
they know which precinct they are to report to.
    I always encourage election officials to meet with the 
advocate groups early and often, so that each knows what the 
other is doing, so that election officials know the level of 
activity for voter registration and what kind of increase in 
voter registration to expect. And we certainly would hope, 
given some of the experiences in the recent primaries, that 
election officials would understand it is better to send more 
ballots, more materials to polling places, than to budget on 
last year's turnout, because that is just not working right 
now.
    And, therefore, provisional ballots are being used in ways 
that they were not envisioned, which is, if you run out of a 
ballot, then you must use the provisional ballot. 
Unfortunately, some states and locals are not budgeted to have 
more machines, but certainly I would think that putting more 
machines in a polling place than previous would be one way to 
cut down on lines.
    Mr. Serrano. Okay. Yes?

                            BALLOT CONCERNS

    Ms. Davidson. I think there is one other issue that we all 
need to be prepared for, maybe a couple, is--one is the 
printing of the ballots. There is a lot of ballots being 
printed now, and we must make sure that there is enough 
printers, and that they can get the ballots to the election 
officials timely.
    That is one of the concerns--and make sure that there is a 
process put into place to make sure that the ballots' timing 
bar has not slipped, so the ballots will read on election 
night, not holding up the process--as we have seen in some 
states--of getting results.
    And I will say that the more----
    Mr. Serrano. Now, you said there are ballots being printed 
now?
    Ms. Davidson. No, no.
    Mr. Serrano. Oh, okay.
    Ms. Davidson. But, you know, that is the problem----
    Mr. Serrano. Because we do not know who is running yet.
    Ms. Davidson. Yes, I was going to say, that is the problem.
    Mr. Serrano. Certainly, on this side we do not know.
    Ms. Davidson. If we had that magical ball, we would know 
the ballot, and we could print them now and would not have the 
problem. As you are aware, the list of candidates and issues 
for a ballot come very late. So there is a very short timeframe 
to print ballots.
    That is our concern--is enough ballots could be printed 
immediately so that the election officials have them, and there 
is a process put into place to make sure they are printed 
correctly. And also, that the states really look at it and make 
sure that the design is properly done, so that voters will not 
miss an office, or whatever the case might be.
    Mr. Serrano. Thank you.
    Ms. Hunter. I think what we can do, to the extent we are 
able to, is help voters to determine in advance--and I think 
Commissioner Hillman mentioned this--where they are supposed to 
go on election day. And when they wait until the last minute to 
find that information out, they probably will get a busy 
signal, or they will have a bit of a hard time finding out that 
information.
    So I think we should help voters with a lot of great 
resources that are out there today, that were not maybe even 
four years ago, to determine where they are supposed to go on 
election day.
    Mr. Serrano. Okay. I would hope that as we move forward 
here you keep the Committee informed of what new issues come 
up, so that we can all be part of this informational process. 
Your point is well taken. One of the biggest issues, I know, 
during all of the campaigns I have been involved in--the 
largest amount of questions is calling campaign headquarters, 
whatever, ``Where do I vote?'' You know, people--and things get 
changed, and they are not told that it was changed from the 
last place they went to.

                      TRANSPARENCY OF EAC RESEARCH

    Let me move on to--very quickly to another issue. In 2007, 
the EAC substantially edited a Commission research report on 
voter fraud and intimidation, changing an analysis that 
concluded that voter fraud is rare. After much criticism from 
Congress and others about the lack of transparency at the 
agency, the EAC released the original draft report to the 
Committee and directed its Inspector General to review its 
procedures. The IG's report is expected in the near future.
    What changes to internal policies and procedures have been 
implemented or are being considered to ensure that EAC's work, 
including work done by researchers on contract, is open and 
transparent? Will all research funded with tax dollars be 
available to the public?
    Anyone, or all.
    Ms. Hillman. Well, two things that we have done is we have 
changed the language we use. We will either accept or adopt a 
report, and they mean very different things. If a consultant is 
doing preliminary study for us and presents us with a report, 
we accept it. We post it on our website. It is available as 
presented to us for anybody in the public to see.
    Additionally, we are re-looking at how we, as a small 
agency, can incorporate the multitude of responsibilities for 
overseeing contracts. I mean, the Federal Government is 
replete, as you know, with requirements, and small agencies are 
often challenged to be able to follow all of those things 
through, so that we do not inadvertently take a misstep.
    And the other thing is that we will use our Standards Board 
and our Board of Advisors frequently as sounding boards to help 
us as we work our way through how we approach research 
projects.
    Mr. Serrano. Okay.
    Ms. Hillman. Anyone else?
    Ms. Rodriguez. Just, Mr. Chairman, as the Chair, I do not 
ever want to be accused of burying anything again. And I think 
we can commit to you that we will not be subject to those 
accusations.
    Mr. Serrano. Well, that is important. That was a pretty 
embarrassing situation for a lot of folks, and it was a very 
difficult situation. And it came on early in the work that you 
do, and it created a feeling that maybe we could not get the 
information we needed. And so that is something that we have to 
deal with, and I appreciate your comments.
    I will now recognize Mr. Regula, and after that we will 
make the Committee members angry by sticking to the five-minute 
rule. Mr. Regula? After Mr. Regula.
    Mr. Regula. Thank you, Mr. Chairman.

                          2006 ELECTION REVIEW

    What was your impression of the 2006 elections? Did the 
process work? And did the advice that is available in these 
various publications prove useful in ensuring that the election 
process was done accurately and in a way that the public could 
understand it?
    Ms. Davidson. Being a new agency, the 2006--really, at that 
time we were trying to get out and educate our public, as we 
know we should again this time. And, as you say, education is 
great, whether we educate you so you can help educate the 
public is wonderful. And we appreciate all of the help, because 
definitely getting the word out to the public is very 
important.
    But, in 2006, we did not have a lot of our work done. You 
know, there was some, but it was very small. We have done a lot 
since 2006, and in 2006 it was started, in 2007 a lot of it was 
complete, and, as you have heard, by spring this year we will 
have a lot more of it even up.
    Our website is full of information that we hope--and we try 
to educate the election people, because many of our election 
officials come from small jurisdictions. Getting that 
information down to them, to that level, is very important. 
That is why we see such a need of education, whether it is the 
press--and last year we tried to educate the press. There is a 
lot of work that needs to be done, and having the agency being 
as new as it was in 2006 and trying to get out information, we 
feel we have made great strides of improving on what we had 
started in 2006 to make it better for 2008.

                              POLL WORKERS

    We saw problems that--we are never going to have a perfect 
election. We have over a million poll workers throughout the 
nation. And when we put it into a million people's hands, human 
error is what we find is our biggest problem. So that is why we 
were so glad that we had the study, which took us over a year 
to do, on the poll workers, on educating of the poll workers. 
So that--we are always hurting to get poll workers, number one.
    Mr. Regula. Your studies show how we can get more.
    Ms. Davidson. They gave us great ideas, yes. We pulled in 
election officials that have been very successful in getting 
poll workers to recruit them from--whether it is from the 
corporate world, whether it is from the parties, whether it is 
from any organization, even a non-profit organization, how they 
can be of help and really serve as a poll worker.
    So we are trying very hard. Is it still a problem in our 
nation? Absolutely. We have it throughout the nation of trying 
to find poll workers, and we have election officials at the 
very last minute still scrambling to have enough.
    Mr. Regula. Is it your experience that employers will help? 
It is kind of like jury duty. That they will encourage their 
employees to participate?
    Ms. Davidson. In some jurisdictions, they are very willing 
to help. But in others, they have not been--the election 
official has not been as successful of getting the polling 
workers from the business world.

                            ABSENTEE BALLOTS

    Mr. Regula. Absentee ballots--it is my impression at least 
that more people are voting absentee. Is that accurate? And 
maybe this contributes to the volume of voting, because it is 
easier to do it.
    Ms. Davidson. If you are looking at me, I would be more 
than happy--yes, in a lot of states there is more absentee. 
There is more of a volume. But so far, absentee has not shown 
that it has turned out more of an increase in voters, but we do 
have more people voting absentee. A lot of the western states--
California has gone to permanent absentee now. So in moving 
that direction in a lot of states, we see that the turnout of 
an absentee will be higher.
    Mr. Regula. Do your guidelines help to preclude any voter 
fraud? Because there are always allegations that there is voter 
fraud in some jurisdictions. Do you think following the 
guidelines that you provide will help to preclude that 
happening? Any one of you that would like to----
    Ms. Rodriguez. I can attempt that.
    Mr. Regula. All right. Madam Chairman.
    Ms. Rodriguez. HAVA requires that at the point of 
registration identification is demonstrated by--at the 
registration point. And states have a variety of ways to match 
the voter with that voter's record and polling place. Some 
states require identification. Some states require government-
issued picture identification. Some states require, if the 
voter does not have that, something else.
    So it is a hodgepodge, again, like everything else in 
elections. It is a state-by-state requirement. The EAC has not 
issued ``one size fits all'' policy or guidance on 
identification.
    Mr. Regula. Well, since obviously elections are local 
control, or state control, do you think we should have a 
greater amount of mandatory requirements coming out of the 
federal process?
    Ms. Rodriguez. That would be your decision, Congress's 
decision.
    Mr. Regula. What would you recommend?
    Ms. Rodriguez. I do not have a consensus position from the 
EAC at this point.
    Mr. Regula. Thank you, Mr. Chairman.
    Mr. Serrano. Thank you.
    What is ``permanent absentee''?
    Ms. Davidson. Permanent absentee is your name--once you 
require a ballot by absentee, your name stays on a list. And 
unless you fail to vote, they automatically send an absentee 
ballot to your home at that address, or until it comes back 
undeliverable, and then they take your name off of that 
permanent list.
    Mr. Serrano. Thank you.
    Ms. Kilpatrick.
    Ms. Kilpatrick. Thank you, Mr. Chairman, and good morning. 
I like the female board I see in front of me. [Laughter.]
    We do not get that often here, so it is a pleasure to have 
you all here again this morning. Thank you very much for 
coming.

                  STATE AND LOCAL ELECTION PREPARATION

    This is perhaps--and your responsibility this year, since 
you were started in '02, I believe, and then late--took a year 
or so before you got set up, we did not appropriate you 
properly, you did the best you can do, and I want to commend 
you for the job that you have done over these now five years.
    This election--what is this, the second--nine months away 
will really determine whether all that we have done since we 
have, you know, instituted the EAC and all is going to be what 
we hoped it would be. So I want to ask you that you ask us for 
absolutely everything that you need.
    I think, Ms. Hillman, your points were well taken, as one 
of my colleagues asked the question, you know, how do we get an 
accurate election--all voters can vote, and all votes be 
counted? How do you get the education started now in our local 
communities? And I think the Chair mentioned that some places 
do not even have plans yet.
    We have to be your partners in this, and we do not expect 
you to do it by yourself. But the voter registration lists--I 
mean, those are just absolutely necessary. Meeting with the 
advocacy groups often and soon, necessary. People need to know 
now where they vote, not in July, not in September, certainly 
not in November.
    What kinds of one, two, threes can we do, and as your 
partners, as members of Congress? We all represent 650-, 
700,000 people apiece, and we need to be joined so that we 
might be able to help you get this done, because in a minute we 
are going to point at you guys when we in fact could have been 
much more helpful.
    The ballots themselves, the number of machines, we know now 
it is going to be more than ever, because of what we are seeing 
already this year, and as we go through the rest of the year I 
am sure. What kinds of things can we do now? Madam Secretary of 
State, you mentioned--and it is unfortunate, and I am a former 
state legislator as well, you cannot print the ballot until you 
know who the candidates are.
    So, okay, Presidential is one thing, but it also happens 
locally and statewide. Maybe we ought to have a cutoff period 
or something in the states. We have got to get real creative 
this year, and I hope for the rest of our lives, as more and 
more people come into the process and vote more and have our 
processes sped up.
    What can we do together? Ask for it. I do not care what OMB 
said. I mean, you know, you have got to ask for it. [Laughter.]
    And we have got to help you get it. The appropriation is 
important. Getting it out to the states is more important. And 
seeing that every voter who wants to vote votes, and is 
counted, we will not blame you. They can blame me, not even the 
Chairman, I will take the rap for you.
    But we have got to make sure that there is enough machines 
and ballots, and even the structure of the ballots. Sometimes 
they are too difficult, you know. I am needing something. I am 
asking for something. And I do not know, I just want your 
opinion in general or anything that I can work on particularly, 
or we can work on as a caucus or the House and Senate.
    Ms. Hunter. Madam Vice Chair, I think you bring up some 
excellent points, and I think we all agree with everything you 
just said. As you know, the Help America Vote Act is structured 
in such a way that the Federal Government has a role, of 
course, per the Help America Vote Act.
    But essentially many of the decisions that you discussed 
are made at the state and local level, because, of course, not 
every state thinks that there should be a uniform process, and 
different states have different requirements, different issues. 
For rural communities, there are completely different issues 
than for the Chairman's jurisdiction in Brooklyn. So I think 
that is important to keep in mind.
    You know, the way that the Help America Vote Act has been 
working is that the Congress appropriated $3 billion, as you 
know, and now an additional $115 million for the states to 
spend essentially as they see fit. There are not very strict 
requirements on how they spend that money.
    And so what we are doing, as some of us have discussed this 
morning, is providing some voluntary guidelines for them to 
say, you know, with the money that Congress has appropriated to 
you, you might want to be creative on getting poll workers. You 
know, go to the local universities, do things differently, 
because we all anticipate high turnout, and you have to be 
prepared to have all of these things in place.
    So I think what we are trying to do is to provide that 
guidance that states may not have the resources to do the 
research themselves, to use that guidance to make sure their 
election runs as smoothly as they can. And all of us 
participated in some meetings here a few weeks ago in 
Washington with state and local election officials, and they 
stand ready. They understand that the participation levels will 
be greatly increased. They know the pressures on their jobs. 
Many of them, you know, live under a microscope that they never 
imagined in the past.
    So they are--I believe most of them are prepared, they are 
ready, and they are willing to do whatever it takes.
    Ms. Rodriguez. I would like to add a couple of points. 
Election officials need help recruiting poll workers, and 
members of Congress have the identification with the voters and 
could be real leaders in that effort.
    The election officials need help with their appropriating 
authorities. County Commissioners sometimes cannot get the 
attention of the legislature, and so a letter from a member of 
Congress with an appropriation request might tip the balance in 
favor of an election----
    Ms. Kilpatrick. Give an example of that.
    Ms. Rodriguez. Well, for example, in order to better serve 
the voters in a county, they might need some additional funds. 
And so if that local official had a member of Congress in their 
corner, I bet they would get the attention of the legislature 
better--better get their attention.
    Ms. Kilpatrick. So perhaps now members of Congress need to 
be working closely with their states and elected officials to 
vet out some of this and see where we might work and partner 
together.
    Ms. Rodriguez. You stated my point exactly.
    Ms. Kilpatrick. Thank you. Thank you very much.
    Mr. Regula. You might give us a guideline of how we can be 
helpful. Maybe that is one of the publications you ought to put 
out.
    Ms. Hillman. Well, and I would just add one thing, is to 
make sure that state legislators are more engaged in HAVA 
requirements, because often state legislators do not 
understand. And when the Secretary of State goes for an 
appropriation, like the 5 percent match that is required for 
the $115 million to be disbursed, and if state legislatures 
drag their feet and do not get it done, that means the state is 
delayed in receiving its funds.

                     DEVELOPING NEW VOTING SYSTEMS

    I would like to put one thing on the table in response to 
your question, and let me say, Congresswoman, thank you very 
much for recognizing those struggles EAC has and the work that 
we have been doing. But for the long term, but it--long term, 
all things are relative. Let us say if we look down the road to 
2012, two things could very nicely come together. The Election 
Assistance Commission is working on, as was mentioned earlier, 
our guidelines for voting systems, the next generation.
    I think Congress can do a lot to end the concern and debate 
about what is a good voting system. The manufacturers need some 
incentive, some encouragement, to come to the table. And I 
think it would be appropriate for Congress to consider some 
funding for some innovations, so that the manufacturers will 
step up to the plate. My guess is in 2002 Congress thought we 
would be a lot further along with respect to what is an 
accessible machine and what is available in the market.
    And election officials can only purchase what is in the 
market, and they get scared when a manufacturer says, ``If you 
want that, we can do it, but it is going to cost several 
thousand more.'' So as Congress did, like with the orphan drug 
issue, the people who purchase voting systems, that is a 
relatively small constituency.
    But if Congress gave--put out some money for innovation, 
for research and testing, so that we can have the kind of 
voting systems that will well serve America, so that we will 
not have calibration issues, so that we will not have confusion 
over software, so that we will not have the kind of systems 
that cause people concern.
    Mr. Serrano. Thank you. We have less than five minutes on a 
vote, so we are going to take a break--it is one vote--and come 
back and resume our questioning of this panel.
    Thank you.
    [Recess.]
    Mr. Serrano. Had we finished all of the comments on that 
last question? Yes, we had.
    Ms. Rodriguez. I believe so.
    Mr. Serrano. Yes.

                        PAPERWORK REDUCTION ACT

    Ms. Hillman. Well, there would have been one other thing, 
and it sounds mundane, but it is very important to us. The 
Election Assistance Commission is subject to the Paperwork 
Reduction Act, which means for any project we do where we have 
to collect information from the states, we have to go through 
that process, which adds 90 to 120 days to whatever project we 
do.
    So if this Committee today asks us to collect data 
available to them by April 1st, we probably could not do it 
unless we got total exemption. So we do request consideration 
that EAC, like the FEC, can be exempt from the Paperwork 
Reduction Act. It would allow us to meet the every two-year 
deadline cycles that we have to prepare for elections.
    Mr. Serrano. That is a good point, and the Committee will 
certainly take that up. I think that's only a fair request. I 
hope voting machines are not held under that provision, Paper 
Reduction.
    The Committee will now recognize the newest member of our 
Committee, the gentleman from Brooklyn, New York, right?
    Mr. Goode. Right.
    Mr. Serrano. That accent is from Brooklyn, New York, I 
assure you. Mr. Goode from the great state of Virginia.
    I'm sorry, Mr. Goode. With all due respect, Mr. Bonner was 
next, and I had promised him if he hurried back he would be 
next, the gentleman from Alabama. He also has a Brooklyn 
accent.
    Mr. Bonner. Thank you.
    I am sorry. I am a little winded. This is my first day on 
the Committee and my first day on the Subcommittee, and I am 
honored to join both.

                      MILITARY AND OVERSEAS VOTERS

    In many ways it is very appropriate that the question I 
might ask of this distinguished panel has to do with the brave 
men and women around the world who allow us to meet today in 
freedom. Many states face challenges to ensure that our service 
men and women overseas are able to effectively participate in 
the election process.
    My home State of Alabama alone has some 19,000 men and 
women in uniform who claim Alabama as their residence, and all 
50 states can make similar claims. These are men and women 
defending our freedoms and helping to spread the right to vote 
many times to oppressed people around the world, and they are 
practically prevented from having their votes counted in our 
own elections.
    GAO has suggested that the Department of Defense create a 
plan for future electronic voting. Our own Secretary of State 
in Alabama, Beth Chapman, would like to see Alabama participate 
in a pilot program with DoD to provide secure voting over the 
Internet for members of our military and other Americans who 
reside overseas.
    I have been told that we are waiting on the Election 
Assistance Commission to help develop guidelines so such a 
program could work. Can you give us some thoughts about what we 
can do to ensure, especially, this year if we are looking at 
record votes being cast and counted here in our own country? 
How can we make sure that the people who allow us to stay free 
have their votes counted as well?
    Ms. Rodriguez. Thank you.
    Commissioner Davidson.
    Ms. Davidson. I will start with it, and I hope maybe others 
will add because I am sure I am going to leave something out 
that is very important.
    But we have dedicated a portion of our Web site to the 
military and overseas voters that we give links to whether it 
is the military branches, all of the military branches, to the 
Overseas Vote Foundation, which is a nonprofit, as well as 
NASS, and to other organizations that we can give information 
out about so that the overseas people know what their state 
laws are and how they can meet the needs.
    The other thing that we are doing, we are working with NIST 
in developing guidelines. We did a study that took a year and a 
half in doing the study about what works best throughout the 
nation, and I believe it was four or six states--I am not 
sure--that we did this study with.
    In doing that study, it is getting ready to come out, you 
know, best practices for the military and the overseas voting, 
and the other thing that we did is we did a study of the actual 
overseas and military, what did they like and how did they like 
to go about voting. In that, we have 5,000 individuals reply to 
that survey, and that survey, we are just getting ready to put 
that out. We have just received that in from the contractor. So 
it is being reviewed right now and we will get comments from 
our locals, as we always do, try to put it out to our states 
and get comments.
    So we are on the move in having NIST really develop those 
studies. They are moving forward to actually, first of all, 
make sure that they transmit the ballot over safely and be able 
to get it back safely. So electronic transmission, and then 
move into Internet itself because there are more issues in 
Internet voting than there is transmitting it and having them 
mail it back.
    But at least if we can eliminate the travel time of a 
ballot over and for them to be able to mail it back like most 
states are doing, then that is great. But we also are having 
states move forward and are actually transmitting it back 
electronically.
    So we have two states. I believe it is Arizona and 
Washington States that are registering people online if they 
have a driver's license. That also helps them in the overseas 
voting because if they are registering them, they have moved 
forward where they are also looking into receiving the ballot 
back electronically.
    The security of that ballot is what we are most concerned 
about and making sure that individual has their right to the 
ballot and nobody else. So obviously we want to work as fast as 
we can, but make sure that we actually address all of the 
issues that we can, and so we are moving forward, and we are 
working with the Federal Voter Assistance, Polli Brunelli, in 
doing this, and we are moving forward with her as well as with 
NIST.
    We have done an intergovernmental agreement with the two 
agencies. So all three of us are working together.
    Mr. Bonner. So is it safe to say that this Commission can 
give assurance to the military men and women that we are doing 
everything we can to ensure that their votes will count?
    Ms. Rodriguez. Mr. Bonner, yes, it is a very high priority 
of this Commission to enable that.
    Ms. Hunter. But I think I would like to just add that 
states are doing some of their own great ideas, and Florida is 
one of them. One of the counties there took it upon themselves 
to create a pilot program to allow voters to be able to vote 
actually overseas in certain locations, and I know the 
Secretary from Alabama is hosting a conference on this issue in 
the next two weeks.
    So I think while it is true that NIST is working on 
standards to be able to vote via the Internet. I hope States do 
not wait for that because it may take some time, and I think 
when you really look at the issue, as Commissioner Davidson 
said, the issue is the transmission of the ballots, and because 
the ballots are printed somewhat late in the process, you know, 
the election officials are unable to mail them until the 
ballots are ready, of course.
    And it is a very small window of time. When you just think 
it is only about mailing things, it seems so obvious that one 
of the best ways to fix it is through some kind of electronic 
transmission, and I think that we should be able to come up 
with guidelines for states that they can use to transmit these 
ballots securely.
    Ms. Hillman. Mr. Bonner, if I just might add that while the 
EAC has been asked to study the issue and come up with 
guidelines, I think we do have to acknowledge that the Federal 
Voting Assistance Program at the Department of Defense has 
enormous responsibility for helping states find the military 
personnel who have moved and what their addresses are, and so 
that is a big piece of this as well.
    Ms. Davidson. Could I add one more thing?
    There is one problem that we have with it, is the federal 
law says that absentee ballots to the overseas and military is 
left on at that address unless they are notified, and as we 
know, our military move around a lot. We are getting a lot of 
those ballots back at the state and local level that is not 
addressed properly because the military has moved. So that is 
one of our problems of having correct information, and we are 
working with them trying to get that.
    Once we have better information, we may come back to you 
and say we definitely need some help in some law changes.
    Mr. Bonner. Thank you, Mr. Chairman.
    Mr. Serrano. Thank you.
    Ms. Wasserman Shultz from the State of Florida, which you 
say is way ahead the rest of the nation.

                  VOTER FRAUD AND INTIMIDATION REPORT

    Ms. Wasserman Schultz. Yes, we are, but that is after eight 
years of struggling to get to this point, and I might add that 
the Election Assistance Commission was created as a result of 
the Help America Vote act, which resulted directly from the 
travesty that occurred in the presidential election of 2000.
    Madam Chair, my question is for you. My series of questions 
will be for you, and I would be happy to have any others chime 
in while you are out it.
    But, Mr. Chairman, I would like to ask unanimous consent to 
enter into the record a first person account by Tova Andrea 
Wang that was published in the Washington Post on August 30th 
of 2007.
    Mr. Serrano. Without objection.
    [The information follows:]


[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    
    Ms. Wasserman Schultz. Thank you.
    Tova Wang and Job Serebrov were commissioned by the EAC to 
conduct a study about voter fraud and intimidation; is that 
correct?
    And my question is directed to you, Madam Chair.
    Ms. Hunter. Okay. I am the Vice Chair, but I will be happy 
to answer your question.
    Ms. Wasserman Schultz. No, I would like my question 
directed to the Chair.
    Ms. Rodriguez. Yes. Yes, ma'am, that is correct.
    Ms. Wasserman Schultz. Thank you.
    And they wrote this in partnership together to provide 
partisan balance; is that correct?
    Ms. Rodriguez. Yes.
    Ms. Wasserman Schultz. Their research found widespread 
agreement among administrators, academics, and election experts 
from all points on the political spectrum, that allegations of 
fraud through voter impersonation at polling places was greatly 
exaggerated, and that was in the draft that was submitted to 
your commission initially, correct?
    Ms. Rodriguez. Yes.
    Ms. Wasserman Schultz. After submitting the draft in July 
2006, Ms. Wang and her co-author were barred by the commission 
staff from having anything more to do with the project; is that 
correct?
    Ms. Rodriguez. That is correct.
    Ms. Wasserman Schultz. Okay. Why was that?
    Ms. Rodriguez. I'm sorry. Why was?
    Ms. Wasserman Schultz. Why were they barred from having 
anything more to do with the project after they submitted their 
draft?
    Ms. Rodriguez. The EAC accepted the draft, and they at the 
time were classified as contract employees, and the EA----
    Ms. Wasserman Schultz. But why wouldn't you want the 
expertise of the authors when you were going forward, moving 
forward with the production of the final report?
    Ms. Rodriguez. As I was not there, I cannot accurately 
answer that question, but I can speculate, and----
    Ms. Wasserman Schultz. Is there someone who was on the 
commission who can answer that question as to why the authors 
of the report were barred from further participation after they 
submitted their draft?
    Ms. Hillman. I was on the commission. I would not agree 
with the terminology that they were barred. Unfortunately, 
several weeks went by after their report was submitted due to a 
staff person not prioritizing it and moving it along fast 
enough, and then their contract time had expired.
    Ms. Wasserman Schultz. Okay. Ms. Wang's account is that 
they were prohibited from any further participation in the 
report after they initially submitted the draft. Do you dispute 
that account?
    Ms. Hillman. I am not aware of anything in which they would 
have been prohibited or barred from participating.
    Ms. Wasserman Schultz. Okay. If you could verify that and 
get that information to the Committee for the record, I would 
appreciate it.
    Ms. Hillman. I do not know if there is information I can 
get you. I am just simply saying as a member of the commission 
I was not aware of anything that would have barred or 
prohibited them except for the fact that their contract had 
expired.
    Ms. Wasserman Schultz. Okay. Well, according to them, they 
were specifically prohibited, and the chair of the commission 
acknowledges that.
    Who is Hans von Spakovsky, Madam Chair?
    Ms. Rodriguez. Mr. von Spakovsky is, I believe--well, I do 
not know what his status is--a member of the Federal Election 
Commission.
    Ms. Wasserman Schultz. Okay. Did he direct that Tova Wang 
be taken off the assignment at the time? Did he have any 
involvement in her removal or participation in the assignment?
    Ms. Rodriguez. At the time he was on the EAC's Board of 
Advisors, and I have seen E-mail from him expressing concern 
about her working on the project.
    Ms. Wasserman Schultz. Thank you.
    Ms. Rodriguez. But he certainly did not direct the 
operations.
    Ms. Wasserman Schultz. But he did express vocal concern, 
and as a member of the EAC's Advisory Board, about her 
participation.
    Ms. Rodriguez. In the E-mail that I read, yes.
    Ms. Wasserman Schultz. Okay. And six months after they 
submitted their preliminary findings, the EAC released a 
report, and it concluded that voter fraud was a matter of 
considerable debate, directly in contradiction to the draft 
report's findings; is that correct?
    Ms. Rodriguez. Well, I am going to ask Commissioner Hillman 
if she would.
    Ms. Wasserman Schultz. Is that correct? Yes or no? The 
final report said there was a matter of considerable debate. 
The draft said the opposite, correct?
    Ms. Rodriguez. That's correct.
    Ms. Wasserman Schultz. Okay. Thank you.
    And the commission still attached Ms. Wang's name to the 
report, as well as Mr. Serebrov, correct?
    They were considered the authors, and it was reported as 
such.
    The report also----
    Ms. Hillman. Excuse me. If I might, Congresswoman.
    Ms. Wasserman Schultz. Yes.
    Ms. Hillman. No, the report came out as an EAC report. We 
acknowledged that the research work had been conducted by Ms. 
Wang, but they were not written as the authors.
    Ms. Wasserman Schultz. Okay, but the findings were in 
direct contradiction to the authors, to the researchers, as you 
characterized them, to the researchers' findings, and you still 
attached their names to the report.
    The report also excluded much of the discussion of voter 
intimidation that was in the draft, correct?
    If that is the case, then why?
    Ms. Rodriguez. I am sorry. Will you repeat that question?
    Ms. Wasserman Schultz. The report also excluded much of the 
discussion of voter intimidation that was in the researchers' 
findings. Why did that happen?
    Ms. Rodriguez. I cannot really do justice with that, my 
response to that question. That is something I would like to 
supplement after learning about----
    Ms. Wasserman Schultz. Were you on the commission at the 
time that the report was released?
    Ms. Rodriguez. No.
    Ms. Wasserman Schultz. Okay.
    Ms. Rodriguez. Oh, at the time it was released?
    Ms. Wasserman Schultz. Yes.
    Ms. Rodriguez. Yes.
    Ms. Wasserman Schultz. Okay. Well, then you had a draft. 
You voted in favor of the release of the final report. You saw 
the draft which included the voter intimidation information and 
that was not included in the final report. Why?
    Ms. Rodriguez. I was on the commission at the time that the 
draft was released at the suggestion of this Committee, but I 
was not on the commission at the time the revised or the EAC--
    Ms. Wasserman Schultz. Is there anyone on the commission 
that can tell me why the information about voter intimidation 
was not in the final report?
    Ms. Hillman. I was on the commission, but, Congresswoman, I 
would have to go back because I am not sure which information 
you are referring to, and so my memory does not serve me to 
answer your question directly because I do not recall it that 
way.
    Ms. Wasserman Schultz. That is convenient. If you could 
please get me the information for the record and make sure that 
we have it.
    Ms. Hillman. It is not a matter of convenience, ma'am. It 
is a matter of human being.
    Ms. Wasserman Schultz. Okay.
    Ms. Hillman. I do not remember what happened two years ago 
verbatim.
    Ms. Wasserman Schultz. There are a lot of human beings that 
come before congressional committees and have lapses in memory.
    What was Mr. von Spakovsky's role during this time? Anyone 
who was actually on the commission.
    You have to forgive me for taking this a little bit 
personally. I am a member of Congress that represents the State 
of Florida. The HAVA Act is the direct result of the debacle 
that took place in 2000. Your commission was created 
specifically to make sure that we protect the right to vote, 
that we enhance the right to vote, and that we make sure that 
every vote is registered and counted. And you produce a suspect 
report that was dramatically rewritten, that you acknowledge 
was dramatically rewritten compared to the authors' draft that 
was submitted, and you are asking for a significant amount, 
millions of dollars, and the confidence of the American people, 
which is the purpose of your institution, and I am really not 
sure how you expect the American people and this Committee to 
give you those millions of dollars when you decided to make a 
report that should not have been politicized a totally 
political document.
    Ms. Davidson. Maybe I can add a little bit.
    Ms. Wasserman Schultz. Please. That would be illuminating.
    Ms. Davidson. When we asked for the report to be done, when 
we asked for it, we asked for a definition of what vote fraud 
and vote intimidation was.
    We also asked in the contract that as we went through it, 
you know, what we asked for in the contract was not what we 
got. How should we move forward in the study is what we asked 
for. We did not ask for a conclusion.
    There were 24 people who were interviewed in that report, 
if I remember correctly, 24 or 27.
    Ms. Wasserman Schultz. Since you're making that accusation 
or that suggestion, let me quote Job Serebrov, the Republican 
elections lawyer who was commissioned to co-author the report. 
He said, ``Tova and I worked hard to produce a correct, 
accurate, and truthful report.``
    Mr. Serebrov wrote, referring to Tova Wang, a voting expert 
with liberal leanings from the Century Foundation and co-author 
of the report--he is a Republican elections lawyer from 
Arkansas--``I could care less that the results were not what 
the more conservative members of my party wanted.'' He added, 
``Neither one of us was willing to conform results for 
political expediency.''
    So you have your bipartisan authors who differ with the 
commission's characterization of their work.
    Ms. Davidson. You know, that is the reason why we put over 
40,000 pieces of documents up on the Web site. Everything that 
took place in that study----
    Ms. Wasserman Schultz. Unfortunately only after Congress 
forced you.
    Ms. Davidson [continuing]. And the contract, and we would 
be more than happy to provide you a copy with a contract 
showing what they had actually signed to.
    Ms. Wasserman Schultz. That would be great.
    Mr. Chairman, I know that my time is expiring because I 
hear you banging, but the discomfort that I have is that the 
EAC was formed to help determine what problems in our nation's 
voting system existed, and that we can have a more accessible, 
fair, and accurate voting system. But I do not know how the 
commission can do that unless it finds some reforms for itself.
    I yield back.
    Mr. Serrano. And the Committee understands that concern and 
has voiced that concern strongly last year because I do not 
think the Committee would be tolerant of that kind of behavior 
again.
    Mr. Bonner. Could I inquire of the Chairman?
    Mr. Serrano. Yes.
    Mr. Bonner. Given that you raised this issue in your 
opening statement as a concern and the gentle lady from Florida 
has raised this question as well, would it be fair to ask--I 
know my time has expired--but would it be fair to ask if there 
is concern that the report was delayed for a reason, was there 
political pressure put on the commission by the White House or 
by members of Congress or by other people that might have 
influenced this?
    I know I am the newest kid on the block, but is that not an 
appropriate question?
    Mr. Serrano. Well, that is a fair question that has been 
asked in the past. People have denied that kind of situation, 
but it was not a pleasant thing that we had to deal with last 
year, and I can assure you that this Committee, both the 
Chairman and the Ranking Member, would not be happy with that 
kind of behavior again, and one answers as to what happened 
then. Still we keep asking those questions.
    But we are where we are now.
    Mr. Goode the newest member of the Committee from the great 
State of Virginia.
    Mr. Goode. Thank you I appreciate it.
    Mr. Serrano. With your Brooklyn accent.
    Mr. Goode. I thank each Commissioner for being here today.

              STATE FUNDING UNDER HAVA AND STATE SPENDING

    Let me ask a little bit about what you all have been 
spending. Since the inception of the EAC, how much federal 
money has been spent under HAVA? Six billion, seven billion, 
eight billion, nine billion? Just kind of ball park.
    Ms. Hillman. No, sir, I would say less than four billion. 
About 3.2 billion went to the states directly as requirements 
payments, and it has been way less than four billion because 
the EAC has received less than 60 million in the four years, in 
the first four budgets.
    Mr. Goode. So you spent 3.2 billion the first year in 
grants to the states to change or upgrade their voting 
equipment, correct?
    Ms. Hillman. There were three separate payments. One was 
early money for them to get their HAVA state plans together and 
then to be able to replace the punch card and the lever 
machines, and then the second largest set of requirements 
payments was sent out in 2004 and 2005.
    Mr. Goode. How much do you say the states had to spend of 
their own monies and local governments to match or do upgrades?
    Ms. Hillman. I am not sure that we have that information, 
sir. They were required to do a five percent match. Some states 
had reported what they had spent beyond that five percent, but 
that information is not required for states to report to us. So 
we do not get that.
    Mr. Goode. What was the number one company in selling 
voting equipment to the states in terms of dollars would you 
guess?
    Ms. Hillman. I honestly do not know, sir.
    Mr. Goode. Anyone?
    Ms. Rodriguez. I do not know either.
    Ms. Hillman. The states purchase their own equipment, and I 
cannot tell you which company would have sold the most 
equipment to the states.
    Mr. Goode. All right. So it would be depending on how much 
the states did spend, counting state money, federal money, and 
local money to make all of the voting machine changes and 
everything. It was more than four billion, ballpark, in less 
than six counting state money and local?
    Ms. Hillman. State money? Wow, if I am ballparking, I would 
say it was probably--just on what the state spent, not our 
operating budget----
    Mr. Goode. Right.
    Ms. Hillman [continuing]. I would say maybe, maybe four 
billion, maybe.
    Mr. Goode. Okay. Thank you, Mr. Chairman.
    Mr. Serrano. Thank you.

       IG INVESTIGATION INTO VOTER FRAUD AND INTIMIDATION REPORT

    Let me just remind folks that in my opening statement, I 
did mention the fact that the IG is due to come out with a 
report on this particular issue that you had brought up, and 
about the procedures that were in place that might have led to 
this situation.
    So there is a pending IG report coming out, we understand, 
soon.
    Mr. Cramer.
    Mr. Cramer. Thank you, Mr. Chairman, and I apologize for 
having to be late to the hearing. I always like to be on time.
    But I wanted to be here as much to welcome my colleague and 
friend from Alabama, Jo Bonner, who happens to be from lower 
Alabama. I am from north Alabama, and we are part of the 
Alabama team, and I want to associate myself with the remarks 
of the Ranking Member and the Chair in welcoming Mr. Bonner to 
this particular Subcommittee and to the full Committee as well.
    Mr. Serrano. Mr. Hinchey and I are from New York, just to 
let you know.
    Mr. Cramer. I think I knew that, but thanks for reminding.
    Mr. Serrano. We did welcome him.
    Mr. Cramer. I know you did. I know you did, but 
unfortunately I was not here at the time, and I apologize for 
making you endure that.
    I want to give you the opportunity. I am a little late in 
jumping into your issues here, but I want to give you the 
chance to respond to the issues that Ms. Wasserman Schultz and 
my colleague, Jo Bonner from Alabama, were proposing.
    Was there pressure put on you in any way whatsoever?
    Ms. Rodriguez. On behalf of the commission, I will thank 
the Chair for mentioning the Inspector General's report. We 
voted unanimously to investigate that matter. We await. Nobody 
wants to see that report more than we do. I personally do not 
believe that there was external pressure. I do believe that the 
research was mishandled.
    Mr. Cramer. How?
    Ms. Rodriguez. Well, I have read all of the E-mails. I 
mean, she clearly wanted to continue to participate and 
contribute to the project, and it looked like there was not a 
lot of response. We may not have been clear in our Statement of 
Work in the parameters that we set down for a relationship. I 
know that we have learned a lot from it as an agency.
    I told the Chair that I do not want to ever be accused of 
burying things or mishandling things, and I speak for the 
commission. It was not where we wanted to be perceived by this 
body at the time.
    Mr. Cramer. I would like the rest of you, please, to give a 
reaction to that.
    Ms. Hunter. Sir, I was not on the commission at the time 
that this report was being dealt with, but I will say that I 
agree with the comments of the chairwoman. We anxiously await 
that report, and from everything I can tell from the E-mails 
that I have read, there was no outside political pressure, and 
I believe Ms. Wang even acknowledged as such in the article 
that the Congresswoman refers to.
    I do not believe that there was any kind of political 
pressure in this regard, and I read the report several months 
ago, and from what I can tell, the conclusions that she calls 
research were based on interviews of approximately 26 people, 
and I do not know how you can draw sweeping national 
conclusions based on interviewing 26 people.
    Thank you.
    Mr. Cramer. And particularly the allegation that officials 
at the Justice Department were actively involved in the report 
throughout the process and even exerted some degree of 
editorial control over the new report.
    Ms. Hunter. There were two members, I believe it was, of 
the Department of Justice who were on the Board of Advisors of 
the Election Assistance Commission, and they are required to be 
on the board pursuant to the Help America Vote Act. So in their 
capacity as board members, they did weigh in on a couple of 
matters, yes.
    Mr. Cramer. Well, weighing in is one thing, but 
controlling, dictating, exerting pressure, you were not on the 
commission so you would not know that. I would like the rest of 
you to respond to that.
    Ms. Hillman. Certainly, sir. Let me say that we did have a 
member, a person from the Department of Justice who worked on 
the working group, the project under which Ms. Wang and Mr. 
Serebrov did the work, had the working group, and we did have 
someone from the Department of Justice who was on there.
    And our principal staff person on this project did consult 
with him periodically. What I would say as a member of this 
commission, two things. I personally never received any 
pressure from either side of the aisle with respect to the 
contents of the report, particularly not from the Justice 
Department.
    I was aware that expressions of concern had been raised; 
partisan expressions of concern had been raised with respect to 
Ms. Wang's participation, but I was not aware and I did not 
receive any pressure.
    I do not believe our staff received any pressure. 
Irrespective of the participation of a representative from the 
Department of Justice on the working group, I do not believe 
the Justice Department put pressure on our staff to change.
    However, I do look forward to the results of the Inspector 
General's report to tell me whether or not what I believed at 
the time I voted to release the information was correct or not.
    Mr. Cramer. Well, it will be important for all of us to 
know what was spinning around.
    Yes, Ms. Davidson. Did you want to offer information?
    Ms. Davidson. I agree with everything that has been said. I 
was chair during that time, and I asked because I brought it 
up, that I felt that we needed to go to the IG and ask for a 
report to be done. And my colleagues voted unanimously to back 
that.
    And so we all look forward to that. We expect it at any 
time. We really thought it would be here before now.
    So as it moves forward, I took a pledge myself of saying if 
there was anything in that report we needed to change in our 
office, and we have already started changing how we work 
through our process of contracting. GovWorks does our 
contracting. We do not do it ourselves individually now so that 
it is actually out of our hands at the EAC.
    There is more of a protection there for the contractors as 
well as, you know, the Office of the EAC. So as we move 
forward, we are improving.
    We learned a great deal, as we said, and we moved forward 
to do a lot better job, but I never received any contact from 
the Justice Department, the White House, from any colleague on 
any side, a pressure of how I should vote. I never have.
    The only time I ever heard from the White House is that my 
name was going to be submitted to the Senate for a 
confirmation. That is the last time I heard from them. So I 
really feel in my review of the E-mails, I do not think the 
staff had any pressure put on them either, but we are anxiously 
awaiting for that report to find out if there was anything.
    Mr. Cramer. Specifically, if I have any time left, the 
Department of Justice involvement, would you react to that?
     Ms. Davidson. The Department of Justice, I was contacted 
twice with the Department of Justice. When I first came on I 
went with Ray Martinez to a luncheon, just a hello greeting.
    The second time after the report was done I got an E-mail 
from Hans von Spakovsky, which I know is up on the Internet, 
but I never responded to it, and that was after the report was 
done.
    Mr. Cramer. Thank you, Mr. Chairman.
    Mr. Serrano. Mr. Alexander.
    Mr. Kirk.
    Mr. Kirk. Thank you.

                           VOTER VERIFICATION

    I would like to sort of look at the past and look at the 
future. I remember when my predecessor was retiring, a nice, 
old gentleman came up to me and said, ``I want to apologize.''
    And I said, ``Why?''
    And he said, ``I was the guy that stuffed the ballot in 
1978 to make sure that your predecessor lost his first chance 
for election.''
    And later on he turned out to be a good Congressman, and so 
I just want to apologize because I think John Porter was a good 
guy.
    You know, I come from Chicago. We know these things, but it 
was a sort of disheartening moment to go through.
    With all of the money that you have, what about just 
assuring the American people also of the integrity of the 
process?
    And I want to take a moment to look forward. Is there an 
EAC policy on, you know, people convicted of federal felonies 
and to get that out to the states? Is there a policy on dead 
people, foreign citizens voting, people who we actually know 
were under the age of 18, double jurisdiction voters, something 
we see a lot of, you know, voting in the city and then coming 
out and voting in another place?
    Anything on that to upgrade our standards and make sure in 
the work of the commission?
    Ms. Hunter. As Chairwoman Rodriguez mentioned earlier, the 
Help America Vote Act does have a verification requirement at 
the front end, when voters submit their voter registration 
form. So that hopefully will help in some respect to the 
concerns that you raise.
    Another thing is that the Election Assistance Commission 
has commissioned a study with the National Academy of Sciences, 
and we are hoping that that study assists states in doing 
proper matching procedures so that they are able to use their 
voter registration list and match it up against the records of 
persons who are deceased, for example, and to ensure that they 
are matching the proper people before that person is removed.
    But, of course, federal law does require that states have a 
list maintenance program, and unfortunately many states have 
not done that list maintenance, and so several states have come 
to us and said, ``We need help in this regard. We would like 
some national standards.''
    And that is why EAC entered into the contract with the 
National Academy of Sciences. So we are hoping that what comes 
out of that contract will assist in some of the areas you have 
mentioned.
    Mr. Kirk. I would just think though we have a list of 
federal felons, the federal government. Has that ever been 
provided to the states?
    Ms. Hunter. Not to my knowledge.
    Ms. Rodriguez. The states have a variety of laws about 
felon voting and the rights of felons that we have no control 
over.
    Mr. Kirk. But no data assistance on that point?
    Ms. Hunter. No.
    Mr. Kirk. The Social Security Administration obviously 
knows who is dead because you have got to stop the checks.
    Ms. Davidson. Yes. HAVA requires the states now with their 
new voter registration systems to check with the Vital 
Statistics to make sure that they have the deceased off of 
their list. It also requires that they go through Justice to 
make sure they could meet their state laws, whether it is a 
felon or what the case might be.
    So HAVA has put in some requirements for the states with 
their voter registration systems to improve upon the areas that 
you are talking about.
    Mr. Kirk. I just say that because in my district, for 
example, two dead guys resurrected themselves. One dead guy 
voted or signed election petitions twice before the Super 
Tuesday elections. So the process of resurrection is very 
active in my area, and I was just wondering if there was any 
way you could help.
    Ms. Davidson. Hopefully as the states move forward in 
developing of their statewide voter registration list and doing 
their process, we are hoping that that will definitely correct 
everything, and as we said, we are also doing the study and how 
they actually take names off the list. If there are duplicates 
within the state, as you mentioned, they could be registered in 
one location.
    So we are moving forward in trying to assist the states in 
the best practices.
    Mr. Kirk. This has more of a federal bent. What about a 
double jurisdiction voter? Happens to vote in the city, get on 
the train, and then vote somewhere else the same day.
    Ms. Davidson. Well, obviously that is one of the things 
that really is looked at after the election. If something like 
that has occurred, then any election, and it depends on their 
state and the state law whether it is sent to the District 
Attorney or whether it is sent to the judge at the county 
level, but election through the process of their state laws, 
those types of things are handled after the election and 
prosecuted instead of before.
    Mr. Kirk. But for the commission, no significant work on 
any of these five areas?
    Ms. Davidson. As we said, it is being studied currently at 
the National Academy of Science. So those are all things that 
we are studying and making sure how the states are doing their 
statewide voter registration systems.
    Mr. Kirk. Have any of the studies been published since? Any 
action?
    Ms. Davidson. Any action on the----
    Mr. Kirk. I am looking for anything substantive that you 
have done on the subject where actual action has been taken 
besides just study?
    Ms. Davidson. Well, the states are working on developing 
and some of them are already developed, the statewide voter 
registration.
    Mr. Kirk. No, no. I am thinking for the 37 million we gave 
you guys.
    Ms. Davidson. Of what we have done? Well, we have----
    Ms. Rodriguez. A preliminary draft of the National Academy 
of Science's study that Commissioner Hunter referred to will be 
available in April.
    Mr. Kirk. In April, and that is the first action.
    Ms. Rodriguez. Yes, if you would call it an action.
    Mr. Kirk. Nothing else?
    Ms. Rodriguez. I think if you looked at our authorizing 
statute, you probably wouldn't find much for us in there.
    Mr. Kirk. Thank you, Mr. Chairman.
    Mr. Serrano. Thank you.
    Mr. Hinchey.
    Mr. Hinchey. Thank you very much, Mr. Chairman.

                RELIABILITY OF ELECTRONIC VOTING SYSTEMS

    First of all, I want to thank you for your proposal to make 
it clear that states could use HAVA funds to purchase 
additional equipment if they have no confidence or less 
confidence in what they have already purchased. I think that is 
a very important step, and I hope that you will endorse it and 
make sure that those kinds of things are allowed to happen.
    The problem with the Help America Vote Act is it should 
have been the Help America Vote Accurately Act, because it is, 
in my opinion, undermining the accuracy of voting across the 
country. At the very least it has the very serious potential to 
do so, and I think there are many places where that is actually 
taking place, and we need to be very, very focused on this 
issue.
    We need to make sure that the elections in this country are 
reliable. If they are not reliable, then the people of this 
country begin to become unhappy and uncertain with that 
reliability. We are going to see a major disruption in the 
whole political process here.
     So this is a very critical issue, and that Help America 
Vote Act, I think, has been a big mistake, particularly in the 
way that it is open to potential corruption of the election 
process. I am deeply concerned about that.
    Over the last period of time since the Act has come into 
effect, there have been several districts across the country 
that have reported specifically numerous problems with 
electronic voting equipment. These problems occurred in 
primaries in New Jersey, Georgia, South Carolina, and a few 
other places.
    There have also been several reports that have been issued, 
including a report by the Government Accounting Service. One of 
these reports states that state elections officials in 
California, Colorado, Ohio, Florida, Alaska, Kentucky, and a 
number of other places have been raising concerns about the 
security and the reliability of electronic voting machines.
    I want to ask why is it that the EAC is not taking a more 
aggressive, a more proactive stance in dealing with this issue, 
at least being a receptor or a sounding board for these 
actions. What are you doing? How are you responding to this?
    Ms. Hunter. Congressman, two things that we have done, and 
I mentioned this in my opening comments. We are working on the 
next iteration of the voluntary voting system guidelines, and 
those guidelines will be for the future of voting. So that 
doesn't answer your question. I understand that.
    Mr. Hinchey. Yes, I know. That is right. That is fine. You 
can do that, but the point is we have got to deal with the 
situation now.
    Ms. Hunter. Right.
    Mr. Hinchey. And you have the evidence of problems and you 
have the states stipulating those problems telling you about 
their concerns. It is your job. It is your responsibility to 
deal with these issues and make sure that if there are problems 
in the voting system that they are corrected immediately.
    Ms. Hunter. It is our responsibility to ensure that systems 
that have been certified by the Election Assistance Commission, 
you know, are properly maintained, that they work, that there 
are no problems.
    However, at this point there are no systems that have been 
certified by the Election Assistance Commission. So, of course, 
there is some lag time in between----
    Mr. Hinchey. Well, no, but there are systems that have been 
promoted, that have been pushed, in effect.
    Ms. Hunter. Not----
    Mr. Hinchey. Oh, yes, they have. I am not saying that you 
did it specifically, but there has been a lot of pushing on 
these electronic voting machines, and a lot of people bought 
into them, and now they understand that there are serious 
problems associated with them.
    They are responding to these serious problems, and they are 
calling upon the responsible federal agency to try to do 
something about it. You are the responsible federal agency.
    What are you doing about it?
    Ms. Hunter. We have a policy that states that either a 
state or local election official can send to us their 
experience with voting systems and we post that on our Web site 
so that states can share information amongst one another to 
learn what problems they have had in other jurisdictions.
    So we are doing that as part of our clearinghouse role.
    Mr. Hinchey. Very, very passive. Very, very relaxed, not 
with any intention to bring about corrections.
    Let me just ask you another question. I mean I see the 
answer to that question. The answer is no, you are not doing 
anything, and that is, I think, potentially tragic, and we are 
going to have to address that, and hopefully we will be able to 
address it to some extent within the context of the 
appropriations process.
    But let me ask you another. Are there currently any voting 
systems in the field that have been certified by the EAC?
    Ms. Hunter. No.
    Mr. Hinchey. No, none. Do you have any oversight? Are you 
examining them? Do you have any intention of issuing 
certifications? Do you have any intention of issuing concerns 
about the accuracy, the reliability of these systems?
    Ms. Hunter. No.
    Mr. Hinchey. No.
    Ms. Hunter. I mean, we do not have the authority to do so, 
sir, and the only authority that we have is when a machine has 
been brought to the EAC for certification. There are eight 
systems right now that have been brought to the EAC for 
certification under our program.
    Mr. Hinchey. Well, I would disagree with you on the first 
sentence that you just said there, that you do not have any 
authority. I think you do have authority. I am sure you have 
authority. When you see that there are problems, when people 
are bringing problems to your attention, when states are 
stepping forward and saying, ``We have problems with these 
primaries,'' when other states are stepping forward, when you 
have inspection agencies which are stepping forward, bringing 
all of this matter to public attention, I do not think there is 
anything that you can do to just relax and be passive about it.
    You have got to be more aggressive. You have got to step 
forward. You are the agency that was set up by HAVA to deal 
with these issues.
    Ms. Hillman. Mr. Hinchey, if I might add, on the issue of 
the machines, HAVA set the EAC up to be relatively small. I 
mean, heck, we were kicked to the curb the first year we were 
in existence----
    Mr. Hinchey. Right.
    Ms. Hillman [continuing]. Not being able to operate.
    People have very high expectations of what EAC can do, and 
earlier we were asked by Ms. Kilpatrick as to what do we need. 
If Congress wants EAC to be ready to go into the field to 
investigate problems with machines and to be able to come up 
with recommendations, then we need the staff and resources to 
do that.
    We have 30 people on staff, and quite frankly, with the 
many responsibilities and mandates we have, I would agree with 
you it would be great. I would also say to you, sir, I do not 
think the states would agree that we have that authority 
because the states have been told, ``You purchase the HAVA 
compliant equipment. You choose to purchase. You choose the 
certification process you want to go through, whether you are 
going to go through the national or your own state 
certification process.
    It is all voluntary, sir. So we can be aggressive, but my 
fear is aggressiveness on words without the authority to follow 
up is not going to produce the results that I hear you 
suggesting we need to see.
    Mr. Hinchey. I am not suggesting that you be aggressive, 
and I know you were kicked.
    Ms. Hillman. No.
    Mr. Hinchey. I know you were kicked to the curb, and I know 
who kicked you to the curb, and I know the effects that that 
has had.
    Ms. Hillman. No, I mean aggressive about following up, 
being able to follow up immediately.
    Mr. Hinchey. You need to follow up.
    Ms. Hillman. Right, and we do not have the capacity.
    Mr. Hinchey. If you want to put that follow-up in the form 
of aggressiveness, then please be my guest.
    Ms. Hillman. Well, we do not have the capacity. That is 
what I am trying to say.
    Mr. Hinchey. Well, then you had better make that clear, 
that you do not have the capacity. You do not have the ability 
to do it, and you had better make it clear what the problems 
are because they need to be dealt with, and if you cannot do 
it, somebody else is going to have to.
    Mr. Serrano. Thank you.
    We are running somewhat behind, and we have yet another 
panel to come. Let me finish up in two ways, by thanking all of 
the members for a fine line of questioning, thanking you for 
your presentations.
    But I am going to very loudly disagree with you. You do 
have a hammer. It is called a bully pulpit. If the New York 
Times and the Washington Post or the local Des Moines Gazette, 
if there is such a thing, publishes that you folks said 
something that is not right with the way to run the next 
elections, you have power beyond the power you think you have.
    If you would say to this country, especially now with the 
excitement surrounding this election season, that something 
does not look right, I do not think you realize how powerful 
that is and how people will start jumping through hoops to make 
it right.
    Secondly, you say you do not have resources, but we did 
treat the commission fairly, and this Chairman, along with the 
support of Mr. Regula, made sure that you were a priority.
    Ms. Hillman. Absolutely.
    Mr. Serrano. And we fought some folks who wanted to cut you 
down to the bare bones. This Ranking Member and this Chairman 
did not. We gave you $16 million for the commission. We gave 
you $125 million to carry out some of your work with the 
states. We intend to try to be as helpful as we can. Again, you 
are a top priority for us.
    So it breaks my heart when I have you as a top priority for 
protection and then you tell me you have no power. Use--I do 
not want a response on this. This is my farewell to you. 
[Laughter.]
    Mr. Serrano. Use it. You have it. It is called the bully 
pulpit. Members of Congress use it all the time. What Mr. 
Hinchey just did in his questioning, what Ms. Wasserman Schultz 
did in her questioning did not necessarily change anything 
right now, but it will be reported on. It will be mentioned.
    I told you. You have the bully pulpit. Use it, but you have 
to have the intention and the desire to use it because what you 
have at hand, and I have always said this, you are a small 
agency probably that is going to become one of the most 
important agencies in our government because you have in your 
hands the ability to tell the country how to conduct fairer and 
more accurate elections.
    And if what we hear every day on TV from right wingers and 
left wingers is true, there is nothing more important to us in 
our democratic process and our electoral process. So go out 
there and raise hell. We will support you on behalf of a fair 
and accurate count.
    Thank you.
    Mr. Regula. Mr. Chairman.
    Mr. Serrano. Mr. Regula.
    Mr. Regula. Is it your experience generally that the states 
are receptive? Because they do have the primary responsibility. 
Are they generally receptive to working with you to improve the 
process?
    Ms. Rodriguez. May I? That varies from year to year. One of 
the organizations we worked with passed a resolution to do away 
with the commission a year ago. So when we do not have a heavy 
hand, they are very receptive. When we exert too much force, I 
think they are less receptive.
    Mr. Serrano. Do not feel too bad about that. If you took a 
vote on whether to have a Congress or not, you might be 
surprised with the vote. But we are not going to ask that 
question.
    Ms. Rodriguez. Thank you very much.
    Mr. Serrano. Thank you so much.
    Ms. Hillman. Mr. Chairman, might I say thank you. I heard 
you say that you have got our back, and I want to thank you for 
that.
    Mr. Serrano. Yes, we do. Of course, as Mr. Rangel would 
say, I am with you for as long as I can stay with you. 
[Laughter.]
    Mr. Serrano. No, no. I am only kidding. We have your back.

                                PANEL 2

    Ms. Hillman. Thank you.
    Mr. Serrano. Thank you so much.
    I want to thank the first panel for their testimony. We 
will now turn to our second panel witnesses, and we will try to 
at least get through opening statements before the next series 
of votes.
    This panel has Wendy Weiser from the Brennan Center for 
Justice. She will lead off. Then, Susan Urahn from the Pew 
Charitable Trusts, followed by Arturo Vargas from the National 
Association of Latino Elected and Appointed Officials 
Educational Fund, and Jeff Matthews from the Board of Elections 
in Stark County, Ohio.
    Mr. Regula. There you go.
    Mr. Serrano. Your district?
    Mr. Regula. Every bit.
    Mr. Serrano. So since you are accepting the fact that he is 
from your district, let me say that I am a member of the 
NALEAO. You do not join. You are kind of born into it once you 
get elected, and we welcome everyone to this panel.
    We will hear from you first, Ms. Weiser.

                        Wendy Weiser's Testimony

    Ms. Weiser. Thank you, Mr. Chairman, Ranking Member, and 
members of this Committee for holding this important hearing.
    My testimony will address the oversight that is needed to 
insure that the EAC lives up to its charge and helps insure 
effective election administration this year. I have submitted 
detailed written testimony, and so today I will focus 
principally on the urgent need to reform the way in which the 
agency operates. I will hopefully briefly address also things 
we believe the commission can and should do this year to 
improve election administration.
    Mr. Serrano. I should remind this panel also in case you 
were not in the room that your full testimony will go into the 
record, and we hope you stay within the five-minute rule.
    Ms. Weiser. Okay.
    Mr. Serrano. Thank you.
    Ms. Weiser. The EAC is in charge of some of the most 
critical election administration tasks, from distributing much 
needed HAVA funds to the states, developing standards for 
voting systems, overseeing the certification and testing of 
voting systems, collecting data and conducting election reform 
research, and administering the federal mail-in voter 
registration form.
    And for our elections to run smoothly, it is essential that 
these tasks be executed well, and unfortunately there are now 
two major barriers to this happening. The first is the lack of 
adequate resources in the agency and the second is a lack of 
transparent operating procedures for virtually all of the 
agency's operations.
    And as Commissioner Rodriguez mentioned, two days ago after 
I submitted my written testimony, the EAC's independent 
Inspector General released an audit of the agency's program and 
financial operations, and it bears quoting some of what the 
audit found.
    It found that the agency lacks policies and procedures in 
all program areas to document governance and accountability 
structure and practices in place. It lacks appropriate and 
effective internal controls, a clear organizational structure, 
and strategic plans.
    The audit documents in detail the fact that the EAC does 
not have any standard policies or procedures for virtually any 
of its functions, and this confirms our longstanding concern 
that the agency appears to function at times in an ad hoc 
manner without the transparency, consistency and accountability 
expected of a public agency. And these are serious failings and 
ones with significant consequences. They make the agency's work 
less effective, and they undermine the public's confidence in 
the agency.
    There are two incidents from last election cycle that 
illustrate the problem. The first is the one that was discussed 
at length in the questions and answers for the last panel 
concerning the EAC's mishandling of the voter ID and voter 
fraud report, and for the reasons that this subcommittee has 
already elucidated, this incident shook the public confidence 
in the agency because there was simply no good reason to 
withhold research on matters of public concern, commission from 
established experts with taxpayer dollars under statutory 
mandate to make available to the public studies on election 
administration issues.
    And worse, this was withheld at a time when at virtually 
all levels of government these issues of voter ID and voter 
fraud were being discussed, including in this House.
    The public mistrust was magnified not only by the conduct 
and what happened with the report, but also by the fact that 
the EAC had absolutely no policies or procedures in place for 
making the decisions that it made or managing its research, and 
its action, therefore, seemed ad hoc and arbitrary or to some 
even worse, designed to suppress information.
    And this controversy really could have been avoided if the 
EAC had in place fair and transparent, standardized procedures 
that everyone agreed on in advance that were subject to fair 
research protocols, but it did not.
    And another incident that similarly undermined public 
concern and I addressed at length in my testimony was the 
agency's handling of its assessment of CIBER, one of the 
laboratories that accredited voting machines. This was another 
report that was withheld despite the fact that the agency had 
decided to not to accredit this agency and despite the fact 
that at least the State of New York was using that laboratory 
to test its voting machines.
    Now, while the EAC has taken some steps recently to address 
some of these issues, these deficiencies still infect virtually 
all aspects of the agency's operations, and so we, therefore, 
urge this subcommittee to continue to provide oversight to make 
sure that the agency implements appropriate reforms, including 
those recommended by the Inspector General and in our 
testimony.
    But at the same time, we urge Congress to provide the EAC 
with sufficient resources to undertake this important task and 
to get its house in order and to fulfill its many essential 
statutory functions. The fact remains that the EAC's work is 
critical to our elections, and it needs the resources to do 
that work effectively.
    Thank you.
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    Mr. Serrano. Thank you.

                        Susan Urahn's Testimony

    Ms. Urahn. Thank you, Chairman Serrano, Ranking Member 
Regula, and other members of the Committee for holding this 
important hearing and inviting me to address some of the 
challenges facing U.S. elections.
    As Managing Director of the Pew Center on the States, part 
of the Pew Charitable Trusts, I oversee an initiative called 
Making Voting Work, which seeks to significantly improve the 
accuracy, convenience, efficiency, and security of U.S. 
elections. The challenge for state and local election 
officials, for those who control their budgets, and for policy 
makers in state legislatures and in Congress is to insure that 
elections reflect the way that American now lead their lives 
and take advantage of some of the advances that have 
transformed modern society, and that the answers to fundamental 
questions about the performance of elections can be answered 
with clarity.
    Elections today fail to reflect the convenience and 
efficiency that characterize other interactions that define our 
lives. If you move, your registration does not follow you. If 
you want to register on line, you cannot unless you live in 
Arizona or Washington State.
    If you want to vote at a polling place near your office 
rather than one near your home, in all but a handful of states 
you cannot. If you are one of six million military and overseas 
citizens, you are faced with a complex and conflicting set of 
state rules and regulations when it comes to requesting, 
receiving and returning ballots.
    And if you want information about any of this, how to 
register, where to vote, what is no the ballot, or if your vote 
is counted, it either is not available on line or, if it is, it 
is not very easy to find.
    Unfortunately, the field of election administration has too 
often been unable to muster the resources and the expertise 
needed to meet these challenges. Now, changing this dynamic 
will require testing improvements in how we run elections, 
building a body of evidence and sharing those results broadly 
to inform state and local policies.
    Make Voting Work with support from the JEHT Foundation is 
proud to be working in partnership with election officials, the 
private sector, academics, and others to test some of the most 
promising innovations in several states. Pew has invested $20 
million in this arena to date, and this is only part of a 
multi-year, multimillion dollar commitment on the part of the 
board to really build the evidence base we so desperately need 
in this area.
    Now, given our limited time, I will highlight just one of 
our projects, and if the Committee will allow, we will put the 
full announcement of our first awards into the record.
    In Ohio, Kentucky, and Indiana, the Secretaries of State 
have joined together to test the use of change of address forms 
to improve the registration process, offer voters a convenient 
way to update their registration, and hopefully reduce costs to 
state and local governments. Recognizing that 40 million 
Americans move every year, the National Association of 
Secretaries of State has adopted a resolution at their national 
conference this month calling for an expansion of this 
approach.
    Creating projects like this should encourage us to take an 
entirely new look at conventional practices and think about 
where we can transform the outdated elements of our election 
system. Field test experiments that point the way to a more 
portable registration system are an important step forward.
    But rather than applying Bandaids, it may be time to create 
a voter registration system where states would have a 
comprehensive list of all the voters. Registration would 
seamlessly follow those who move. Ineligible names could not be 
added to the list, and information would be managed reliably.
    And then we have the issue of data. Sound policymaking and 
effective management practices for elections are built on data, 
data that allow us to assess the performance of our election 
systems. Gaps in the EAC election day survey currently are so 
severe that it is nearly impossible to consistently monitor 
state compliance with key provisions of the NVRA and UOCAVA. We 
do not have a good handle on how many Americans are registered 
to vote, how many have been moved to inactive lists, or how 
many show up at polling places for each federal election.
    The EAC must assure that the election day survey meets the 
highest standards of quality data collection, and they need to 
take a leadership role in setting standards for the kinds of 
data we will need to collect over the next decade. With good 
data that reaches down to the precinct level, because that is 
the unit of analysis necessary for meaningful comparison, one 
could determine the impact of a new voting system on accuracy, 
whether any new early voting policy reduces election day 
stress, how the number, age, and training of poll workers 
relates to election performance, which voters take advantage of 
new registration methods such as online registration 
applications or change of address forms, how a new voter 
identification law affects an election.
    This kind of data would allow your committee to better 
evaluate the impact of the Help America Vote Act and the over 
$3 billion in federal funding.
    The Committee has taken a positive first step by funding 
$10 million in new state data collection efforts to be 
administered through the EAC, and thank you, Chairman Serrano, 
for your leadership in securing this funding. Collecting 
information on the state of our elections is a critical element 
of EAC's mandate to serve as a clearinghouse of information 
about elections in the states.
    We firmly believe that the five states that receive funding 
under this new program will set the gold standard for how to 
assess election performance, and we hope that requests for 
proposals receive the attention that they deserve from 
Secretaries of State and state election directors.
    However, the success of this pilot is also dependent on the 
EAC. The data collection program should receive the highest 
priority. They should insure that states receive the support 
they need to submit competitive applications and that 
participating states set aggressive data collection goals, 
including collecting high quality precinct level data.
    I urge the Committee to hold an oversight hearing this 
summer on the data collection program. At that point after the 
grants for the data collection program are awarded and the 2008 
election day survey is released, the Committee will be able to 
hear from the selected states about their plans and from the 
EAC on how they have refined the survey to insure that it 
collects the information needed to assess the performance of 
state election systems.
    Thank you again for the opportunity to testify today, and I 
look forward to future opportunities to talk about Make Voting 
Work, and welcome any questions you may have.
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    Mr. Serrano. Thank you. Thank you so much.
    Mr. Vargas.

                       ARTURO VARGAS'S TESTIMONY

    Mr. Vargas. Thank you, Mr. Chairman, Ranking Member Regula. 
Thank you for the opportunity to testify before you.
    The NALEAO Educational Fund has been at the forefront of 
efforts to insure that federal election reform enhances 
opportunities for full participation by all of our citizens. We 
believe that there must be a comprehensive effort involving 
federal, state, local, community based organizations and the 
private sector to eliminate barriers to voting and to promote 
voter engagement.
    Voters with a limited English proficiency continue to face 
barriers in obtaining information about voting and elections. 
We urge the Department of Justice to continue to vigorously 
enforce the Voting Rights Act language assistance provisions. 
We commend the EAC for publishing its glossary of key election 
terminology, and we recommend that the EAC conduct an 
assessment of how this glossary is being used.
    This will be important as the release of the Census 
Bureau's American Community Survey, ACS, data approaches in 
2010. The Voting Rights Act requires that the ACS data be used 
every five years to determine which jurisdictions are required 
to provide language assistance during elections, and that next 
determination will occur in 2010.
    It is likely that several jurisdictions will be subject to 
the VRA's language assistance requirements for the first time, 
and the EAC will need to help them meet this challenge.
    When the Congress enacted HAVA, the legislation included 
provisions which required certain first hand voters to provide 
ID. Recently there has been an increase in state efforts to 
impose proof of citizenship and voter ID requirements that go 
far beyond the federal mandates. We believe that these measures 
make it more difficult for citizens to register to vote and 
greatly increase the risk that eligible voters will be denied 
the right to vote.
    We believe that EAC should take stronger action to 
discourage states from imposing proof of citizenship or voter 
ID requirements that go beyond the scope of HAVA. We are aware 
that Arizona has asked the EAC to amend the federal mail voter 
registration form to incorporate state specific instructions 
reflecting Arizona's group of citizenship requirement. We urge 
the EAC to reject the request.
    We are also aware of the controversy over two reports 
commissioned by the EAC related to voter ID issues and voter 
fraud, the voter fraud one which was extensively discussed by 
the earlier panel and the members of the Committee. We are 
deeply concerned about the possibility that the election fraud 
reports' conclusions were altered. We are also disappointed 
that the EAC did not adopt the report on voter identification, 
which found that Latino voters were ten percent less likely to 
vote in states that required non-photo ID.
    We hope that the more comprehensive review that the agency 
has initiated will assess the impact of the more restrictive 
photo ID requirements imposed by some states, and we look 
forward to the results of the review that will be conducted by 
the Inspector General.
    With regard to direct electronic voting systems, we believe 
that these hold advantages over older paper-based systems to 
insure that votes are accurately counted. DREs can be 
programmed to provide ballot screens in multiple languages 
where required, which is more cost effective and efficient than 
paper voting materials. DREs are also particularly useful for 
voters with disabilities because they provide them with the 
right to cast a vote privately and independently.
    We understand the concerns that voter verified paper 
capabilities are necessary to maintain public confidence, and 
we are pleased that manufacturers are developing new technology 
that will provide these capabilities for DRE systems.
    However, manufacturers should insure that the voter 
verified paper train technology meets HAVA's accessibility 
requirements for persons with disabilities and for language 
minorities.
    Now, Latino voters face special challenges when they 
participate in the electoral process. They often do not have 
access to information about the basic mechanics of registering 
and casting the ballot. When jurisdictions do not have well 
administered election procedures, they often fail to maintain 
correct data about Latinos and their voter roles, and they fail 
to provide Latinos with election materials in a timely manner.
    Among callers to our national hotline during the past two 
general elections, we found that less than half of Latino 
registered voters reported having received any information from 
their election officials. We also found that voters who were 
not yet fully proficient in English were more likely to 
experience problems with obtaining information from their 
jurisdictions.
    Jurisdictions need to scrutinize every aspect of the 
registration and voting process to insure that there are 
quality control measures for effective election administration. 
States need to carefully examine their procedures for 
maintaining voter databases and processing DMV registrations to 
insure that all eligible registrants are added to the voter 
rolls in a timely manner.
    There should be an assessment of best practices providing 
voters with basic registration and voting information. We 
understand the EAC has undertaken a study of voter hotlines 
operated by election offices, and we urge the agency to conduct 
a more expansive study of overall voter education efforts.
    With regard to poll workers, we believe jurisdictions 
should provide more comprehensive training and specifically 
with regard to the needs and rights of language minority voters 
and those with disabilities and the nondiscriminatory 
application of voter ID requirements. The training should also 
cover HAVA's requirement that voters be provided with the 
opportunity to cast the provisional ballot.
    Many callers to our hotline report not having been offered 
a provisional ballot or found that poll workers were not 
familiar with them, and in some cases our callers were not able 
to cast any ballot because of these problems.
    Finally, election officials should establish partnerships 
with CBOs that serve population groups who are under 
represented in the electoral process. CBOs can provide 
invaluable assistance in nearly every aspect of election 
administration. States and localities can establish CBO 
partnerships by creating advisory panels or committees which 
include CBO representatives.
    Some jurisdictions, such as the County of Los Angeles, have 
ongoing committees that meet regularly with election officials, 
and this allows for troubleshooting of problems. We urge the 
EAC to conduct an assessment of best practices in developing 
and maintaining CBO and election official partnerships.
    Lastly, there is a need for a nonpartisan CBO voter 
engagement and education efforts in under representative 
communities. The traditional mobilization approaches of parties 
and candidates produce short-term increases in turnout among 
certain select groups of voters. They do not aim to create the 
long-term fundamental changes in voter attitudes and behaviors 
that are needed to insure that under representative groups 
become full participants in the electoral process.
    Only a few states offer HAVA funding to non-governmental 
groups for nonpartisan voter education. Most states tend to use 
HAVA funding for already established activities conducted by 
government agencies. Thus, the private sector, including 
corporations and foundations, should explore ways to generate 
more resources for nonpartisan CBO voter information and 
engagement work that targets under representative communities.
    As jurisdictions move forward with implementing HAVA, we 
urge the EAC to provide them with the guidance that enables 
them to embrace the opportunity to make significant 
improvements in the accessibility of election systems for 
Latinos in the nation as a whole. We stand ready to work with 
this Committee and the EAC in insuring that all of our citizens 
have access to the voting process.
    Thank you, Mr. Chairman.
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    Mr. Serrano. Thank you, Mr. Vargas.
    Mr. Matthews.

                        Jeff Matthews' Testimony

    Mr. Matthews. Good afternoon, Chairman Serrano, Ranking 
Member Regula, and members of the Committee. I am pleased to be 
here today to discuss a few election administration issues from 
the local perspective.
    Election officials in Ohio and elsewhere are a diverse 
community of individuals with one thing in common: a desire to 
serve the voter. Because of our diversity, I am not attempting 
to speak for the entire elections community, but to merely 
provide my own opinions based upon my experiences.
    The consensus after the 2000 election was that something 
needed to be done to improve elections in the United States. 
The Help America Vote Act was the result. Although it was 
crafted over a period of two years and provided much needed 
funds to upgrade equipment, the time frame for implementation 
was perhaps rushed as evidenced by recent appeals for another 
overhaul or new equipment.
    In Ohio, there was much debate about implementation and 
deployment, was delayed until November of 2005 due to the Ohio 
general assembly's requirement of a voter verified paper audit 
trail on all direct recording voting equipment.
    In addition, Ohio requires the voter verified paper audit 
trail to be the official ballot of record for recount purposes. 
There have been some widely reported instances of problems with 
the printing of the voter verified paper audit trail due to 
paper jams or the paper being loaded backwards. This has raised 
questions about whether some voters could be disenfranchised 
because Ohio law does not specifically address this issue.
    However, all DRE equipment has a capability to recreate 
either a ballot image or another VVPAT. In Stark County, we 
have conducted nine recounts since deployment in 2005. These 
recounts have included candidates and issues. In every single 
instance the recount has verified the results from the official 
certification.
    Because the VVPAT was an afterthought and not part of the 
original design of the units currently deployed, any federally 
mandated voter verified paper audit trail requirements should 
go into effect only after the Election Assistance Commission 
has developed standards for the function and operation of this 
technology.
    Also widely reported was Ohio's second round of testing of 
its voting equipment, which was federally and state certified 
prior to purchase. Ohio's Secretary of State Jennifer Brunner 
commissioned a study, the evaluation and evaluation of election 
related equipment, standards, and testing report, known as 
EVEREST. It is a comprehensive review of all voting equipment 
currently deployed throughout the state.
    The Ohio study tested the systems for risks to vote 
security, system performance, including load capacity, 
configuration to currently certified systems specifications, 
and operations and internal controls that could mitigate risk.
    The $1.9 million study paid for using federal funds was 
structured to allow two teams of scientists, corporate and 
academic, to conduct parallel assessment of the security of the 
state's voting systems. The researchers in the Ohio study did 
not address the issue of probability of attack, leaving that to 
the determination of state and local officials. The researchers 
commented that with the lack of technical measures and voting 
system design, its integrity is provided purely by the 
integrity and honesty of election officials.
    Although I do not embrace all of the recommendations as the 
result of the EVEREST Project, I do commend the Secretary for a 
concern with election integrity. I have been asked for my 
reaction to the various studies conducted for the EVEREST 
Project. My thought are best reflected in the executive summary 
of the SysTest Lab's risk assessment study of Ohio voting 
systems.
    Beginning with the fourth full paragraph on page 3, the 
solutions to election administration issues, voter confidence, 
and the security and integrity of elections are not to be found 
solely in technology. Regardless of the thoughtfulness and 
thoroughness of a design, the complexities and the costs 
associated with creating systems that are 100 percent secure 
solely on their own is unrealistic.
    True security is a combination of technology related 
security techniques and security measures found in thoughtful, 
well documented policies, procedures and processes for internal 
controls that are reflective of both a specific locality and a 
specific voting system.
    Ohio, like many other states, has a voter ID law which has 
been and is currently being litigated. For election data voting 
purposes, Ohio requirements are as follows: a current and valid 
photo identification that has an Ohio driver's license, state 
ID, government ID. Photo identification must show name and 
address, although the address does not need to be current for 
the driver's license. A military identification that would show 
a name and address, or a copy of a current utility bill, 
including a cell phone bill, a bank statement, a government 
check or paycheck, or other government document that shows the 
voter's name and current address, including if it is from a 
public college or university.
    Voters who do not provide one of these documents are still 
able to vote by provisional ballot and then are given ten days 
to provide that information.
    Obviously, this debate is shaped by two contrary 
ideological positions: facilitating the ease of voting compared 
to the need to secure the election process. What is needed in 
all of these laws is to strike a balance between the right to 
vote with the state's interest in securing free and fair 
elections.
    In conclusion, the EAC provides a valuable resource to 
state and local election officials. Real problems versus 
politically manipulated and reported problems demand and 
deserve our attention. The EAC is the best entity for the 
compilation of this data.
    If documented problems rise to a sufficient level of 
concern, then the EAC should inform Congress of these facts and 
help facilitate a remedy. These remedies if needed should be 
broad in scope, outlining goals and objectives and then 
implemented at the state and local level.
    It is my opinion that the role of Congress should be to 
outline goals and objectives in election matters and not 
specifics because with the diversity of the election 
jurisdictions, it is very difficult to craft a one size fits 
all solution to very complex election issues.
    Thank you for your invitation to speak to you today.
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    Mr. Serrano. Thank you all for fine presentations.
    We have five minutes left on a series, the first of three 
votes. The second vote is a five-minute vote, and the third 
vote is a five-minute vote. So we will get back here as quickly 
as we can. We ask the panel to please stay so that we can join 
in the questioning.
    Thank you.
    [Recess.]
    Mr. Serrano. While we were gone, we lowered all of your 
taxes and left Iraq, all in one.

                 DISCRIMINATION AGAINST MINORITY VOTERS

    We thank you for your patience, and we will begin our 
questioning now. Mr. Vargas, this nation has an unfortunate 
history of discrimination against minority voters. Long after 
enactment of the Voting Rights Act, forms of discrimination 
still exist. A survey of Latino elected officials and civic 
leaders by your organization found that over half of the 
respondents have either experienced voting discrimination or 
have witnessed it.
    What are now the most prevalent forms of discrimination 
against minority voters? Are sufficient election resources 
being directed in your opinion to jurisdictions that have these 
problems or that have low income communities?
    Is it a matter of not enough voting machines, well trained 
poll workers?
    What should state and local election officials do to 
prevent discrimination? And I know that a lot of folks, I 
think, in this country at times do not understand this, you 
know. I look at everything when I look at the Latino community 
based on my experience as someone who was born in Puerto Rico, 
and I find that that is different from folks who are born in 
other countries outside the U.S. and its territories because 
they in so many cases come from situations where voting was 
something that they had to fight the military to get or fight 
somebody else to get, and they come here and they know they 
have all of the rights in the world, but it does not take much.
    I remember in New York one year we had a situation with 
asbestos in the schools, and someone suggested--I cannot 
believe they suggested this--that we should have elections that 
year outside the school buildings because we use schools in New 
York City, as you know, in the school yard in a tent, and have 
the National Guard guarding the machines.
    I said, ``No. Don't you see they come from systems where 
the military stands around so that they do not vote? The last 
thing you want is the National Guard hanging around an election 
poll.''
    So what forms does this discrimination take, when it takes 
place takes these days?
    Mr. Vargas. Thank you, Mr. Chairman, for that question, and 
if you like, I actually brought a copy of that study we 
conducted on discrimination. I could submit it along with my 
testimony for the record.
    Mr. Serrano. That would be great. That would be great.
    [Clerk's note: The material is included following the 
opening statement of Mr. Vargas]
    Mr. Vargas. Certainly the implementation of voter ID and 
citizenship requirements has been uneven and in some cases poll 
workers without adequate training have been requiring certain 
proof of citizenship.
    Mr. Serrano. Proof of citizenship. I want to make clear no 
one picks us up on that.
    Mr. Vargas. Right, and individuals like yourself, sir. You 
know, whether you were born in Puerto Rico or on the mainland, 
you are a U.S. citizen by birth, and you do not walk around 
with passports necessarily.
    And so what we have seen though from calls to our hotline 
have been reports of people being asked to prove their 
citizenship when that is not being required in certain 
jurisdictions.

                          POLL WORKER TRAINING

    What we see as the most pervasive issue is the lack of 
appropriate training of poll workers who are not familiar with 
exactly what the requirements are of the law and see themselves 
as the last line of defense between democracy and voter fraud 
when, in fact, it is just people who are trying to exercise 
their right to vote.
    Many times folks are not aware that if their names do not 
appear on the voter rolls, they have a right to a provisional 
ballot, and poll workers do not advise them of that right. So 
many voters are, in fact, disenfranchised because they are sent 
away if they do not find their names on the voting rolls.
    So what we believe is most needed is adequate training of 
poll workers, that poll workers be fully advised of what the 
rights are of language minorities, that if a U.S. citizen comes 
into the polling place and they are not yet fully proficient in 
English, they do have the right to vote even though they may 
not yet speak English, and that is especially true for senior 
citizens who are naturalized U.S. citizens who do not need to 
show knowledge of English to become a U.S. citizen. They are 
over 65 years of age.
    In all of these instances many times people who are voting 
for the first time may be discouraged if they are not being 
given full assistance in the voting process.
    Mr. Serrano. It is interesting what you are telling us 
because when people hear the word ``discrimination,'' they 
usually think of an aggressive desire to do some harm to you, 
and you are saying that most see this as not necessarily people 
not wanting these folks to vote, but not being prepared to 
really deal with them and know, for instance, that you do not 
have to ask for this or you do not have to ask for that. And 
you are right. They see themselves as the last wave.
    So training of poll workers, but that continues to be a 
problem, right? I mean, I find even in our area where people 
used to line up to work at the poll, now you have to go and 
find them. Is it in your opinion just a matter of lack of 
interest on the part of the citizenry? Is it that we do not pay 
them enough?
    Why are we not getting enough poll workers?
    Mr. Vargas. Well, certainly there is a great disincentive 
to give up a full work day to work for only a nominal amount 
and to do a civic duty working as a poll worker. But one of the 
programs that we implemented a few years ago, which I think is 
something that bears replication, is that we partnered at the 
NALEAO Educational Fund with the Secretary of State of 
California, who was at the time Bill Jones, and State Farm 
Insurance Company, where State Farm Insurance Company gave 
their agents the day off with pay to work as poll workers, and 
that was an incentive especially for those State Farm employees 
who could speak languages other than English so that they could 
go work. So they did not lose a day of pay. In fact, the 
company paid them still their daily salary.
    We had over I think it was a couple of hundred State Farm 
employees to work the polls. So I think there are some 
creative, innovative ways when we can have public, private, 
nonprofit partnerships to try to fulfill the need that we have 
for poll workers.
    Mr. Serrano. That is interesting. Of course, you did not 
tell us that half of the voters switched to State Farm, right, 
right after the election? [Laughter.]

                              VOTER FRAUD

    Mr. Serrano. The Brennan Center has always done a lot of 
work in this area, and I commend the work that you all do. I am 
very familiar with the work of the Brennan Center. How 
significant is the issue of voter fraud, in your opinion?
    What are some examples of voter fraud, but interestingly 
enough, what are some examples of things that some people 
perceive to be voter fraud and, in fact, are not?
    Ms. Weiser. Thank you.
    We have actually recently completed an extensive study on 
this topic called the Truth about Voter Fraud, which I have 
brought copies of, and we would be happy also to submit that to 
the record.
    Mr. Serrano. Without objection.
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    Ms. Weiser. The question depends on your definition of the 
term ``voter fraud.'' Election misconduct is something that 
exists and there are problems. Vote buying exists. There have 
been ballot tamperings. There have been documented instances.
    But what we have been hearing a lot of noise about over the 
past couple of years has been a thing called in-person voter 
fraud, or impersonation fraud. We are referring to when an 
individual voter shows up at a polling place and pretends to be 
someone else on the voter rolls in order to vote in their 
place. And that is something that has been used to justify a 
range of restrictions on voting and most commonly voter ID, and 
that is something that we have found almost never occurs.
    We have done an extensive study of all of the documented 
allegations of voter fraud of that sort and found this is 
something that is extraordinarily rare and it, in fact, does 
not make sense. The benefit to the putative fraud feasor is 
very minimal. It is one marginal vote. The risk of getting 
caught is high, and the penalties are extraordinary, five years 
in prison and $10,000 in penalties.
    So, you know, according to our studies, which are 
consistent with virtually all other studies that are out there, 
including the study that was discussed this morning that the 
EAC Commission has found that this is something that is really 
not a problem in our elections today.
    Mr. Serrano. And that is an interesting point because it 
would seem to me that if you are malicious enough to try to 
commit voter fraud, that one is so easy to get caught at and 
then the penalty is so severe. So why the complaint by some 
folks that there's vast voter fraud going on in the country?

                           VOTER INTIMIDATION

    I mean, I think there was a problem in 2000 with counting 
votes. I have seen examples of voter intimidation. I remember a 
few years ago in New York City we had an election for mayor, 
and what happened was that on election morning pasted flyers 
showed up saying that immigration would be checking citizenship 
at the polls.
    Well, those of us especially in the Hispanic community know 
that even if you're a citizen, there is still a chilling effect 
on immigration. The IRS and Immigration seem to upset all 
Americans, and so the idea that Immigration would be asking, 
which was not true, we feel and some people claim kept citizens 
away. It did not keep away the folks that were trying to break 
the law that day.
    And the other point here is that there are people who swear 
that undocumented aliens want to vote. If you know the behavior 
of undocumented aliens, the whole idea is to stay in the 
shadows of society. It is not to come and say, ``Here I am. I 
am going to go on election day and be seen by the police and 
everybody and you can catch me.''
    That is not the point. In fact, it is just the opposite. 
They become citizens. They are registered to vote, and then you 
have to convince them to vote.
    So is voter intimidation an issue that's stronger than 
voter fraud as we know it?
    Ms. Weiser. We would certainly say so. We agree that the 
phantom of in-person voter fraud has been used to try and 
justify a range of restrictions on voting, some of which you 
mentioned, proof of citizen requirements, ID bills, but also 
unfair purges of the voter rolls, certain other uses of 
databases to restrict access to voting, and that is a real 
problem.
    And when there are real other threats to the integrity of 
our elections, voter intimidation, as Mr. Vargas had testified, 
is a significant problem that has been documented, especially 
by election protection hotlines significantly over the past two 
election cycles, and you know, there is also the threat of the 
security of our elections from the insecure voting systems that 
we have and the fact that we do not actually audit any of the 
audit records that voting systems have in place.
    Mr. Serrano. Mr. Matthews, what do you look for? What are 
the complaints, when there are complaints, about the issue of 
voter fraud or voter intimidation or suppressing the vote if 
you get any of those complaints?
    What form do they take?
    Mr. Matthews. Well, we did have one case prior to the Ohio 
voter ID law enactment where a father impersonated his son at 
the Board of Elections to vote. So it does occur, and in the 
environment when we are talking about one vote really counts, 
it may have been one situation, but it did occur.
    And I think you are in a position where you do not know the 
extent of it. I do not get many complaints about that. I do not 
get many complaints about intimidation.

                           VOTER REGISTRATION

    Mr. Serrano. What do you get complaints about?
    Mr. Matthews. Accessibility, long lines in the suburbs. 
Those are the kind of complaints that I receive. You know, I 
think there is some anecdotal information when four or 500 
people show up and vote a provisional ballot on a presidential 
election and they are not even registered to vote. That may be 
election misconduct. There may be some walking around money out 
there. You know, you cannot prove that. Those are some things 
that some people raise as possibilities, but we do not see 
much.
    Mr. Serrano. Well, let me ask you a question on that. I 
find traditionally in New York that people will register to 
vote. I mean, it happens much less now, but they will register, 
honestly register to vote wherever the voter registration drive 
is, and then that was not processed. So they go on election day 
feeling that they were registered, and yet they are not.
    Well, they are not lying about it. They honestly think that 
they are registered. So how up to date in Ohio do you feel are 
your voters' rolls, as an example of one state? I mean it is 
unfair. You are the only person representing a state here, but 
maybe we can get some feeling of what is going on out there.
    Mr. Matthews. Well, I think that we are very up to date 
with our voter rolls, not only new registrations but existing 
registrations. One of the laws that we have is an election 
notification. For our March primary we mailed a notification to 
every registered voter informing them of their poll location.
    Mr. Serrano. Right.
    Mr. Matthews. So this serves two purposes, and it actually 
pleases both sides. We are informing people where to vote. We 
are also cleaning up our rolls if that notice is bounced back, 
and then we do a follow-up mailing that is forwardable to tell 
them to change their address, and that is done in plenty of 
time before the close of registration so they are not forced to 
vote a provisional ballot.
    Mr. Serrano. Mr. Regula.
    Mr. Regula. Thank you, Mr. Chairman.
    Mr. Matthews, you mentioned Ohio's voter identification 
law. What are the characteristics of that? What is required?
    Mr. Matthews. Well, a photo ID is ideal that contains an 
address. If it is a driver's license, it is not required to be 
a current address. However, there is a number of other 
government documents, including utility bills that suffice for 
the identification requirement in Ohio.
    Mr. Regula. Has it worked pretty well that you prevent, for 
lack of a better term, fraud?
    Mr. Matthews. I think it has worked well. I think that 
through education most voters realize that it is required. I am 
not sure if it prevents fraud. I know that if you are required 
to show some form of ID then there is a verification process 
there.

                  POLL WORKER RECRUITMENT AND TRAINING

    Mr. Regula. What is your experience in getting poll 
workers? I hear this complaint from many sources.
    Mr. Matthews. Well, as has been mentioned, you need proper 
training of poll workers, and every year we seem either at the 
state or the federal level to add additional responsibilities 
and burdens to the poll workers, also not only through state 
and federal, but through the court system we add additional 
burdens to poll workers.
     And so what we are seeing is a huge turnover in poll 
workers. They are getting to the point where they do not want 
the responsibility. You have certain activists that are 
accusing them of being part of the problem, and so we have a 
tremendous turnover now. It is not only recruitment. It is 
retention. So you are constantly in a training mode.
    So, for example, they may not--it does not happen in Stark 
County, of course--but as Mr. Vargas said, you know, there are 
instances where they are not aware that in a federal election 
they are required to offer a provisional ballot if someone is 
not in the book.
    So the problem with the poll workers is multi-faceted. It 
is not just limited to the responsibilities. It is limited to 
the length of days. It includes the pay, and oddly, we have 
some people that are doing it for the money, and those are not 
necessarily the ones you want to be recruiting.
    Mr. Regula. Do you have any experience where companies or 
firms of any kind will give their employees a day's pay if they 
serve as a poll worker?
    Mr. Matthews. Yes. As a matter of fact, we championed a 
state law that allowed public employees to do that, and I did 
that when I was president of the Ohio Association of Election 
Officials. I made that one of my goals for the year that I was 
president, and we were able to pass it.
    Of course, the County Commissioners Association and the 
Municipal League and a few others watered it down a little, 
like we were going to bankrupt them, I guess, and we have 
reached out to various corporations.
    We also are extensively utilizing high school and college 
students. In some counties in Ohio, I have been told that ten 
percent of their poll workers are high school students.
    Mr. Regula. Is there any minimum age required for poll 
workers?
    Mr. Matthews. Ideally you would want an 18-year-old, but 
the Ohio law does allow a 17-year-old.
    Mr. Regula. Seventeen is the cutoff then?
    Mr. Matthews. As long as they are going to be 18 by the 
November election, yes.

                        MOBILE VOTER POPULATION

    Mr. Regula. Another problem, I think, is we are a very 
mobile population. People are constantly moving in their job, 
and so do you find that difficult? People are moving in to 
establish their residence so that they are eligible for the 
next election?
    Mr. Matthews. Yes. I was very excited about the pilot 
project that the Pew Charitable Trusts are in charge of with 
regard to Ohio, Indiana and Kentucky, I believe, where when 
they file a change of address with the Postal Service, which 
not everyone does, you know, when they receive their packet, 
they will receive voter registration forms.
    One thing that I have done locally with realtors is that 
when they are closing a home, they will hand over a couple 
voter registration cards also.
    Again, that does not touch everyone, and it really does not 
touch the most mobile of our population. You know, I think in 
presidential years you have various groups that are out 
registering people, and it is amazing. Over the summer leading 
up to a November general election, some people move three times 
because we receive three registrations at three different 
addresses, and it is not a case of fraud. It is a fact that 
they have moved because once someone registers in Ohio, we are 
required to mail them a notice. And if two bounce back and one 
is deliverable, then we know that is not a case of fraud and 
where someone is registering in multiple locations.
    Mr. Regula. You heard Mr. Bonner talk about their problems 
with military personnel, and of course, our county doesn't have 
the volume that they would in some locations. Do you have any 
problem getting the military people an opportunity to vote?
    Mr. Matthews. Yes, we have the same frustrations I think 
that everyone has documented that sometimes even if we have an 
up to date address by the time we mail the ballot and it is 
delivered, they have moved on.
    For example, this year in a presidential primary election 
in Ohio, absentee balloting starts 25 days before the election.
    Mr. Regula. Is it closed at a given time?
    Mr. Matthews. It closes effectively the day before the 
election, for absentee. For mail-out purposes, it is the 
Saturday before the election. But in a normal election, it is 
35 days, but for some reason in a presidential primary it is 25 
days, which makes it very difficult. That is our first mailing 
always, is the military and overseas ballots. They go out the 
first legal day, and everything that we have to that point.
    And the frustrating problem is that it is not getting 
forwarded, and then it is not being returned in time to be 
counted. They are given additional days, you know, after the 
election, but still, if they are not being delivered in the 
first place, it does not help. Something really needs to be 
done with that.
    Mr. Regula. Tell us about the Pew program that Mr. Matthews 
alluded to.
    Ms. Urahn. Mr. Regula, it is a program, as was mentioned, 
where we include voter registration forms in the change of 
address. It gets included in that packet, which has 100 percent 
open rate. So even though everyone does not request one and get 
it mailed, when it does get out, it gets opened. And we are 
going to test whether that does, indeed, increase the chances 
that people who move will then update their voter registration 
forms.
    Mr. Regula. Well, the objective would be to give more 
people the opportunity to vote even though they are moving 
around; is that correct?
    Ms. Urahn. That is absolutely correct.

                       ONLINE ELECTION ACTIVITIES

    And I might also point out we have another project also in 
Ohio where we are testing some online poll worker training to 
try to address some of the issues around poll worker training, 
and I think that some of the other experiments that ultimately 
are worth looking at is whether the precinct based approach 
which does require a very large temporary work force in terms 
of poll worker training might be supplemented or in some cases 
replaced by vote centers, where you would have the opportunity 
to have a smaller and possibly more professional poll worker 
staff because you would need fewer people.
    Mr. Regula. I am interested. I think someone earlier said 
you could register online to vote; is that correct?
    Ms. Urahn. In some states you can. It is up to the states, 
indeed.
    Mr. Regula. What is Ohio's position?
    Mr. Matthews. Ohio does not allow that currently. They want 
an actual signature on the document under existing Ohio law.
    Mr. Regula. It would seem to me that that would open itself 
up a little bit to fraud. When it's online, you are not sure 
who is inputting at the other end. How do you verify it?
    Ms. Urahn. In terms of the voter registration?
    Mr. Regula. Yes.
    Ms. Urahn. Well, I think it may be less a problem in terms 
of technology for voter registration and getting a blank 
ballot, which I think the big challenge is, particularly for 
overseas voters than actually the returning of the filled out 
ballot, which is a significant challenge yet to be met.
    Mr. Matthews. You would verify it the same way you would 
verify a regular registration. You would send a mailing to the 
address, and if it was a first time registration through mail, 
well, it now requires ID anyway, and you would verify the 
signature that way, the name.

                              HAVA FUNDING

    Mr. Regula. Have the funds thus far that have been made 
available to the group that are funded under the Help America 
Vote been adequate in your judgment? Do any of you want to 
comment on that?
    There has been some effort to give them more money. Do you 
think they are adequately funded to do their job?
    Ms. Weiser. We certainly support greater funding under HAVA 
to the states to implement the methods and changes that HAVA 
had required in voting technology both in terms of voting 
systems and the statewide voter registration databases. There 
is a lot that is not as effective as it could be.
    Mr. Regula. Well, it would seem like people would make a 
decision on the state or as to what system they are going to 
use and then do it and not take the money to change the whole 
system over to something else.
    Ms. Weiser. Well, there are jurisdictions that are not 
changing their system as well, taking a position on the 
changing of systems, but even with existing systems, there are 
additional funds that are needed to make sure that they 
function properly, to make sure that states can actually 
appropriately audit them and maintain the systems, and to make 
sure that the databases have proper functionality.
    So there is a range of needs that states have that do not 
involve changing their systems as well.
    Mr. Vargas. If I could add, sir, we believe one of the 
areas where additional funding would be helpful would be to 
educate the public about the mechanics of voting, how to 
register to vote, and then especially when there are new 
technologies being introduced at the polling location, how to 
actually use the polling machines. Many times people are 
intimidated when they go vote and all of a sudden it is a 
different system than the one they had been used to.
    So there is a need for ongoing public education.
    Mr. Matthews. Mr. Chairman, may I comment on that?
    Mr. Regula. Sure.
    Mr. Matthews. I cannot speak to the funding for the EAC 
itself, but I would think that 3.6 billion funding on new 
equipment was a pretty substantial number. I think that before 
any funding for new voting equipment, I think that we ought to 
wait until standards are established so that when we spend the 
money the next time, you are spending it on equipment that 
meets the latest standards.
    One area where you could have additional funding is for the 
electronic poll book, and that is instead of someone coming to 
the polls and checking in manually with a paper-based system, 
you could have it electronic. You could have your entire county 
database on that electronic poll book so that if they showed up 
at the wrong location, you could direct them to the correct 
location.
    Sometimes lines are formed not because of too few machines 
but the check-in process, because we are dealing with an older 
crowd that is our poll worker group right now, and they are 
just not as quick. That can be helped through equipment like 
electronic poll books.
    So I would not mind seeing funding for that, but I think 
until we develop standards on new voting equipment, we could 
change every two years.
    Mr. Serrano. Mr. Matthews, as an interested Democrat, I am 
tempted to ask you if everything is in place for next Tuesday. 
You guys are up next Tuesday, right?
    Mr. Matthews. Yes, Tuesday is going to be very interesting 
on many levels in Ohio.
    Mr. Serrano. Yes. I would say, and in Texas, too.

                         PORTABLE VOTER SYSTEM

    You know, I am intrigued by the thought of voting near work 
rather than having to go back. You know, we lose so many 
voters, I think, because they have to leave early in the 
morning. There is a problem checking in, but they are coming 
back after nine o'clock at night, and even though New York has 
long hours, from six in the morning to 9:00 p.m., there are 
still some people who get caught up in that.
    And then I am very intrigued by the thought of in the same 
way that we have a Social Security card, to have a voter card 
that allows you to vote wherever you are at that point, where 
you're living in that jurisdiction without having to register 
everywhere. You go from one building to another and you have to 
re-register.
    But I am reminded by the smart folks back here that states 
have those rights and they take very seriously the desire to 
run their own system. So how realistic is it that we can reach 
a time here when we have some kind of universal, you know, 
voting ability, if you will, in this country?
    Yes.
    Ms. Urahn. I think it is entirely realistic that ultimately 
you could reach the point of having a portable registration 
system. I think part of the challenge is that the field has 
been appropriately from the election official's standpoint very 
focused on the next election, and it is a difficult field that 
is a resource poor field and it is a difficult field within 
which to take a long-term look.
    It is part of the luxury that we have, is really taking a 
look beyond the 2008 election, looking out to 2012 and trying 
to find ways for states to begin to test some of these 
innovations and really understand what works, what does not, 
and how it works and how to help the states begin to implement 
these things.
    Mr. Serrano. Well, we have a database for Social Security 
card. I am speaking to Mr. Vargas now. Can you believe I am 
talking about national cards here, you know? That is another 
issue. [Laughter.]
    Mr. Serrano. We have wherever we go in this country with 
our Social Security number, it works. How much thought has gone 
into the possibility of establishing a system where you could 
go with a voter registration card anywhere in the country and 
then you kind of have to sign up with that community, right? 
You just cannot walk in and say, ``I am voting in his district 
today when I was in the Bronx last week.``
    How does that work? You could only vote in the area where 
you are residing. Would that be the plan?
    Ms. Weiser. The Brennan Center is actually currently 
studying this exact question as to how to move towards a system 
of more universal voter registration where the government takes 
a more affirmative responsibility for making sure that all 
citizens are registered and can vote. And there are a range of 
different options that we are considering, that we do not have 
a final set of recommendations, but some things that make us 
hopeful that this is really available in the near future or 
might be available in the near future.
    For one thing, the massive technological advances that were 
brought by the statewide voter registration databases; the 
experience in many states with election day registration; the 
work that Pew Charitable Trusts is funding to experiment with 
portable registration. I think that we are a lot closer to that 
day when voter registration does not serve as much of a barrier 
than we were just a few years ago.
    And we would be happy to share our work with the Committee 
as soon as it is complete.
    Mr. Serrano. Please. We would like to see that.
    Mr. Vargas. Mr. Serrano, I think we should be very cautious 
about trying to replicate a voting system based on the Social 
Security system. While you may think it works, it does not work 
for everybody necessarily, and I know of many of your 
colleagues who continuously get constituent complaints about 
their names not being accurate on the Social Security 
Administration rolls and because of some snafu and some 
bureaucratic snafu.
    We would not want somebody's right to vote be denied 
because of some bureaucratic snafu.
    Mr. Serrano. Right, but we have that problem now. 
Obviously, any system we put forth we would have to look at 
what we have in place now and see how it can be adjusted, and 
certainly Social Security cards are not perfect. In fact, there 
are other people on Lou Dobbs every night who tell you how they 
are not perfect in another way.
    But my point is, for instance, I have never understood the 
notion in New York, and I am sure it happens in a lot of 
states, that if you do not vote in four elections in a row--I 
believe that is what the law still is--you lose your 
registration.
    Well, no. If voting is that important a right as a citizen, 
then I should have from the day I turn 18 to the day I die, and 
I should not lose it because I chose not to vote for four years 
where I was out of the country and so on. Yet I know the 
records have to be kept of people.
    So my question is: how do we deal with those two issues in 
that case, for instance, and how do we deal with the 
possibility of having the ability to register once and then you 
vote the rest of your life anywhere you go in the country? Is 
that possible?
    Yes.
    Mr. Matthews. I am not sure that that is possible, but if I 
may touch on a couple of points you have raised earlier about 
voting anywhere, voting near work. Keep in mind that if you are 
going to have a vote center concept like that, you need to be 
looking at technology capabilities versus paper based systems 
because as long as we are precinct based system, you know, we 
are voting on those issues and those candidates that are 
localized to where we reside, and to have a vote center that 
has every single ballot style available for that jurisdiction, 
for that county, let's say, is impossible.
    That is usually called a Board of Elections, but as far as 
a vote center concept, this is primarily a case where you can 
really use the technology of the DRE because you can have every 
ballot style.
    And so I would embrace a vote center concept if it included 
that component. Otherwise I am not sure how that would work.
    Mr. Serrano. Well, let me tell you a little bit of it. Mr. 
Regula is part of my mischievous ways. The whole idea of 
creating havoc on all the pundits who tell you who voted where, 
can you imagine if all the people from the South Bronx voted at 
work in the middle of Manhattan and then it would look like Mr. 
Nadler's district voted the way the South Bronx used to vote 
all the time?
    I mean, those guys would go crazy on TV that night. That 
would be nice. [Laughter.]
    Mr. Regula. I think it would be difficult for the very 
reasons that Mr. Matthews points out because you have got to 
have a local. An anchor is where you live, and if you have a 
vote center next to your factory, it seems to me it would be 
hard to keep track of things.
    Mr. Matthews. You could do that if you were online and you 
had the technology to make it happen, but a paper-based system 
does not work, in my opinion.
    Mr. Serrano. It would just wreck polling. I love that, and 
the big CNN maps where they say, ``How is the other one?'' No, 
they do not know how they voted, and that is good.
    Well, listen. This is an ongoing issue. If there is 
something dramatic about this or sad, it is that the greatest 
democracy on earth may have committed the sin New York City 
committed with a subway system. It was running well. It worked 
well, and no one thought it needed any repairs, and all of a 
sudden a few years ago they realized that it needed a lot of 
help.
    I think for so long our voting system, our democracy has 
worked well and people just took it for granted and did not pay 
attention to it. Now we find that there are many issues and 
many problems that threaten, in my opinion, the very democracy 
that we all love and are sworn to protect.
    And so I can see no greater issue in terms of protecting 
our rights and securing our future right now than making sure 
that we get accurate counts, that we open the system up to 
everybody who is eligible to vote, and to encourage people to 
vote.
    This year may be the beginning of that if the numbers hold 
in terms of the young people that have been voting, and there 
will be a demand on the system like we have never seen before 
in November, but it will be a healthy demand, young people 
saying, ``Yes, I am not cynical. I want to be part of this 
society. This is my country, and I want to protect it by 
casting my vote.''
    So we all are challenged to make sure that this takes 
place, and I certainly thank all of you for your input and for 
your worthy information that we will use as we go along, and we 
thank you for your involvement today.
    And this hearing is now adjourned.

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                                       Thursday, February 28, 2008.

 CONSUMER PROTECTION IN FINANCIAL SERVICES: SUBPRIME LENDING AND OTHER 
                          FINANCIAL ACTIVITIES

                               WITNESSES

                                PANEL 1

DONNA GAMBRELL, DIRECTOR OF THE COMMUNITY DEVELOPMENT FINANCIAL 
    INSTITUTIONS FUND, DEPARTMENT OF THE TREASURY
LYDIA PARNES, DIRECTOR OF THE BUREAU OF CONSUMER PROTECTION, FEDERAL 
    TRADE COMMISSION

                                PANEL 2

MICHAEL D. CALHOUN, PRESIDENT, CENTER FOR RESPONSIBLE LENDING
JANET MURGUIA, PRESIDENT AND CEO, NATIONAL COUNCIL OF LA RAZA
CHRIS STINEBERT, PRESIDENT AND CEO, AMERICAN FINANCIAL SERVICES 
    ASSOCIATION
GREG LOBO JOST, DEPUTY DIRECTOR, UNIVERSITY NEIGHBORHOOD HOUSING 
    PROGRAM (ALSO REPRESENTING THE NEIGHBORHOOD ECONOMIC DEVELOPMENT 
    ADVOCACY PROJECT)

                  Chairman Serrano's Opening Statement

    Mr. Serrano. The Subcommittee will come to order. Good 
morning to everyone. We waited until exactly 10:00, because as 
you know these hearings are covered by international television 
networks. Okay. [Laughter.]
    We just started on time. It is covered in New York City, it 
is covered in Ohio. [Laughter.]
    Today we will explore an issue that touches upon several of 
the agencies under the jurisdiction of this Subcommittee, and 
that is consumer protection. The consumer protection issue has 
been in the spotlight in a number of ways in recent months, and 
this Subcommittee has followed the issue closely. Today we will 
continue to look at this issue and focus specifically on 
financial services.
    All consumers are at risk of being victimized by financial 
predators. However, it is often our most vulnerable populations 
who bear the brunt of these crimes. Each year countless working 
class parents who are struggling to achieve the American dream 
tragically have their hopes of upward mobility crushed by the 
practices of dishonest businesses.
    While their plight often goes unrecognized, the enduring 
housing crisis has opened the eyes of many Americans to their 
struggles, and made us all aware of the devastating effects 
such exploitation can have on the strength of our economy.
    The impact of subprime mortgages on borrowers continues to 
receive much attention, and this Subcommittee will examine this 
topic. Consumer protection concerns are not limited to subprime 
mortgages, however. There are numerous other financial services 
being offered that have generated worries over the fair 
treatment of consumers.
    Examples include certain loan products such as refund 
anticipation loans, or payday loans, accompanied by excessive 
rates of interest, credit or debit cards with hidden fees, and 
illegal or abusive debt collection. In many cases, the problems 
are in the way financial products are marketed, such as the 
cases of inadequate or misleading disclosure of credit terms, 
or the advertising of so-called credit repair programs making 
false promises.
    With regard to mortgage lending, alternative mortgages, in 
many cases, have been a vehicle for bringing the dream of home 
ownership to many families who would otherwise have not 
qualified for a mortgage. But as we have seen, many local 
housing markets have floundered in the past couple of years. 
The median price of a single-family home fell in 2007 for the 
first time in at least four decades.
    At the same time, hundreds of thousands of subprime loans 
are resetting to higher interest rates, and many of the holders 
of these loans are unable to refinance or sell their homes due 
to the weakening housing market. Foreclosures and late payments 
rose in January to the highest level on record.
    The rise in foreclosures has had implications not just for 
families losing their homes. Whole neighborhoods have seen 
declines in property values and tax base as a result of being 
near foreclosed homes. In New York City, for example, 400,000 
homes are experiencing or will experience devaluation as a 
result of being located near foreclosed homes.
    In addition, minority communities have been, and will 
continue to be, hardest hit by the foreclosure crisis, since 
these communities received a disproportionate share of subprime 
loans in recent years. In 2006, 52 percent of the home loans 
that went to African-American families and 41 percent of the 
home loans that went to Latino families were subprime loans.
    I am deeply concerned that many borrowers in these 
communities were steered specifically toward subprime loans, 
even though the borrowers in many cases were fully qualified to 
receive conventional loans. Minority communities have also been 
disproportionately affected by other forms of financial fraud 
or deception. A 2005 Federal Trade Commission survey found that 
Hispanics and African-Americans experience more fraud. In 
September 2007, the FTC charged telemarketers who were 
promoting advance fee credit cards with deceiving more than 
30,000 Spanish-speaking consumers.
    The Treasury Department has begun to address the issue of 
foreclosures, most notably in the HOPE NOW Initiative. Under 
this voluntary initiative, participating mortgage loan 
companies are agreeing to institute five-year interest rate 
freezes for certain families faced with the prospect of 
foreclosure. While many people in the Treasury Department have 
worked extremely hard on this initiative, I am concerned that: 
one, the proposal is still a voluntary initiative; and, two, a 
great many borrowers who are facing foreclosures are not 
eligible.
    Just how many imminent foreclosures are not addressed by 
this initiative? Secretary Paulson himself has acknowledged 
that we have not yet seen the worst of the foreclosure crisis. 
We must continue to explore what options exist to minimize the 
numbers of foreclosures that will take place in the future.
    Joining us today to discuss these issues are two panels of 
experts. On the first panel we have Donna Gambrell, the 
Director of the Community Development Financial Institutions 
Fund, or CDFI Fund, at the Treasury Department, and we welcome 
you. Both the Treasury Department as a whole, and the CDFI Fund 
specifically, have been involved in these issues.
    Also on our first panel is Lydia Parnes. Am I pronouncing 
that correctly?
    Ms. Parnes. It is [pronounced] Parness.
    Mr. Serrano. Parness.
    Ms. Parnes. Yes, thank you.
    Mr. Serrano. I said it was Parness, and I was still----
    [Laughter.]
    And English is a second language to me. Director of the 
Bureau of Consumer Protection at the Federal Trade Commission. 
The FTC has been very active in the area of consumer protection 
in financial services. We will be joined later by a second 
panel of non-government witnesses.
    Before I recognize the panel, I want to recognize a man 
whose name I have never misstated, Raphael Regula. [Laughter.]
    Mr. Regula.
    Mr. Regula. Well, that is better than Ragula. [Laughter.]
    Mr. Serrano. That happened yesterday, right?
    Mr. Regula. Right. [Laughter.]

                     Mr. Regula's Opening Statement

    Thank you, Mr. Chairman, for holding this--what I think is 
a very important hearing on consumer protection. The subprime 
lending downfall in the United States over these past few 
months has resulted in extraordinary market volatility, but 
also uncertainty and hardship to homeowners and communities 
across the country.
    Mortgage lenders and brokers seem to have resorted to 
disturbing practices of predatory lending in many cases, yet 
distinguishing valid subprime lending from predatory does not 
appear to be clear-cut either, as valid subprime lending has 
allowed many Americans to own a home that otherwise never would 
have.

                                PANEL 1

    I hope the witnesses today from the Federal Trade 
Commission and the Treasury will give light on this distinction 
and help us understand what went wrong and what needs to be 
changed in terms of regulation of the financial services 
industry.
    Mr. Serrano. Thank you, Mr. Regula.
    I will remind the witnesses that we will adhere strictly to 
the five-minute rule. Your full statement will be in the 
record. The less you speak to us, the more we can ask you 
questions. Ms. Gambrell, you will go first.

                     Director Gambrell's Testimony

    Ms. Gambrell. Thank you. Good morning. Chairman Serrano, 
Ranking Member Regula, and members of the Subcommittee, my name 
is Donna Gambrell, and I am the Director of the Department of 
the Treasury's Community Development Financial Institutions 
Fund.
    I am part of Secretary Paulson's senior leadership team in 
the Office of Domestic Finance, which is leading the 
Department's efforts in addressing the housing market issues. I 
am pleased to be here this morning, along with my colleague 
from the Federal Trade Commission, to testify on subprime 
lending and consumer protection.
    As you requested, I am going to focus my remarks on the 
HOPE NOW Alliance, other efforts to address preventable 
foreclosure, and Treasury's main financial literacy and 
education initiatives. HOPE NOW was formed on October 10, 2007, 
as an alliance among non-profit counselors, servicers, 
investors, and other mortgage participants, to maximize efforts 
to reach at-risk homeowners and help them stay in their homes. 
The American Financial Services Association, which is 
represented here today on your second panel of witnesses, is 
one of the many HOPE NOW members.
    Let me first briefly highlight the accomplishments of HOPE 
NOW, since its formation over four and a half months ago. HOPE 
NOW membership has grown from less than 60 percent of the 
subprime mortgage servicing market to 94 percent today. Today 
26 servicers are represented. The nationwide foreclosure 
prevention hotline, 888-995-HOPE, has been publicized and 
expanded. Daily call volume has increased from 625 in the third 
quarter of 2007 to 4,500 today.
    Since last November, HOPE NOW servicers sent one million 
letters to at-risk homeowners. Early results show a 21 percent 
response rate, up from just 2 to 3 percent before HOPE NOW 
existed. Homeowners who had previously avoided contact are now 
calling for help, and over 200,000 additional letters are being 
sent every month. Today all HOPE NOW servicers are contacting 
subprime borrowers 120 days before their interest rate resets.
    The American Securitization Forum--a HOPE NOW member--
developed a framework called the ASF Framework to streamline 
refinancing and loan modifications for subprime ARM borrowers 
whose rates reset between January 1, 2008, and July 31, 2010. 
It is estimated that up to 1.2 million homeowners could benefit 
from the ASF Framework.
    In the second half of 2007, the industry provided loan 
modification and repayment assistance to an estimated 869,000 
homeowners. Coincident with the formation of HOPE NOW, the 
assistance rate in the fourth quarter doubled over the rate in 
the third quarter. Of the 869,000 homeowners assisted, 545,000 
were subprime borrowers.
    Most recently, the HOPE NOW Alliance announced that its 
members would participate in outreach efforts called Project 
Lifeline. Under this initiative, HOPE NOW Alliance members 
agree to reach out to the most vulnerable homeowners who are 90 
days or more delinquent. Homeowners who respond may qualify for 
a pause in the foreclosure process while a loan modification is 
considered.
    This initiative is targeted to reach not only subprime 
borrowers, but all 90-day delinquent homeowners nationwide, 
with a step-by-step approach to find individual solutions to 
individual problems. We look forward to seeing the results of 
HOPE NOW efforts on a monthly basis, in the coming weeks, and 
we will be monitoring the progress of the initiative very 
closely.
    In addition to the HOPE NOW efforts, solutions in mortgage 
counseling and financial education are being developed to help 
homeowners avoid foreclosure. Through the Financial Literacy 
and Education Commission, known as FLEC, Treasury plays an 
active role in improving the nation's level of financial 
literacy and education for people across our nation.
    The Commission includes 19 other federal agencies, 
including the FTC, which is also represented here today. In 
addition to FLEC, Treasury coordinates the President's new 
Advisory Council on Financial Literacy. Through these channels, 
consumers can find information related to home ownership and 
retention, including how to avoid foreclosures, how to access 
credit reports, how to build better credit, and how to save for 
the future.
    To boost housing counseling efforts, the Neighborhood 
Reinvestment Corporation, or NeighborWorks America, is 
administering a new foreclosure mitigation program. 
NeighborWorks has just recently awarded $130 million to 
applicants who plan to provide 89 percent of their services in 
areas of greatest need.
    Due to the CDFI Fund's experience working in distressed 
communities and with homeowners, I am serving on the 
NeighborWorks Advisory Committee to assist the organization in 
implementing this important new program.
    Mr. Chairman, thank you for holding this important hearing 
today and for allowing the Treasury Department to testify. This 
concludes my formal statement, and I would be pleased to answer 
any of your questions.
    [The information follows:]

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    Mr. Serrano. Thank you.

                       Director Parnes' Testimony

    Ms. Parnes. Chairman Serrano, Ranking Member Regula, and 
members of the Subcommittee, I, too, appreciate the opportunity 
to speak with you today about the Federal Trade Commission's 
efforts to combat unfair, deceptive, and other illegal 
practices in the consumer financial services industry.
    First and foremost, the Commission is a law enforcement 
agency with wide-ranging responsibilities, including consumer 
financial issues. We enforce Section 5 of the FTC Act, which 
prohibits unfair or deceptive acts or practices, as well as 
over half a dozen consumer credit-related statutes. The 
Commission's authority, however, does not extend to banks, 
thrifts, and federal credit unions, which Congress has exempted 
from the Commission's jurisdiction.
    The FTC does have jurisdiction over non-bank federal 
entities. The Commission investigates and prosecutes those who 
violate the law. We do not audit or supervise these financial 
institutions.
    Mortgage lending has long been a Commission priority. In 
the past decade, the agency has brought 21 actions focused on 
the mortgage lending industry, alleging that mortgage brokers, 
lenders, and servicers have engaged in unfair or deceptive acts 
and practices. These cases have collectively returned more than 
$320 million to consumers.
    Today the Commission is announcing new actions to protect 
consumers from foreclosure rescue scams. This week we filed a 
case alleging that a company called Safe Harbor contacts 
homeowners guaranteeing to save their homes from foreclosure. 
Instead, the company allegedly entices consumers into a second 
mortgage or home equity line of credit, on unfavorable terms, 
without fully disclosing the costs, risks, and consequences of 
doing so. We filed two other cases under seal this week 
alleging similar unfair and deceptive practices.
    In conjunction with these cases, we are rolling out a 
related consumer education effort--a fact sheet on how to avoid 
foreclosure rescue scams, a series of radio PSAs in English and 
Spanish, and warnings about these schemes which we will place 
in the classified ad sections of English and Spanish language 
community newspapers.
    Our cases and consumer outreach are part of a larger 
partnership to combat mortgage foreclosure rescue scams. 
Commission staff are leading or participating in seven task 
forces around the country to tackle the problems of increasing 
foreclosures and related fraud. Let me mention two other recent 
initiatives in the mortgage lending area.
    First, the FTC last fall warned over 200 mortgage brokers 
and lenders, and the media that carried their ads, that their 
advertising claims may violate federal law. The Commission is 
investigating a number of these mortgage advertisers and will 
continue to monitor these claims.
    Second, the Commission has been active in a new interagency 
subprime lending project. As part of this project, the FTC, the 
Federal Reserve Board, the Office of Thrift Supervision, and 
state regulators are jointly conducting compliance reviews and 
investigations of certain financial entities with significant 
subprime operations.
    The Commission, likewise, has been active in its efforts to 
protect consumers of non-mortgage financial services. 
Yesterday, the FTC announced consent agreements with three 
internet payday lenders who advertised the costs of their loans 
without disclosing their annual percentage rate, in violation 
of the Truth in Lending Act. This violation makes it far more 
difficult for consumers to comparison shop between payday loans 
as well as between payday loans and other short-term forms of 
credit.
    Consumer education also is a key to protecting consumers in 
the financial services marketplace. The FTC has more than 50 
credit-related educational brochures, and we use innovative 
methods to get our messages out. For example, we created--and I 
have here--an English and Spanish language guide to help 
organizations working with Hispanic communities to educate 
consumers about their rights.
    We have partnered with local agencies to give financial 
education presentations at senior centers and other community-
based organizations, and just this month the U.S. Postal 
Service distributed our identity theft brochure to the 121 
million U.S. households.
    Protecting consumers from unfair and deceptive acts and 
practices in the financial services market is, and will 
continue to be, a top priority for the FTC. The Commission 
appreciates your consideration of its views, and I look forward 
to your questions.
    Thank you.
    [The information follows:]

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    Mr. Serrano. Thank you so much. Thank you both for your 
testimony.

                TREASURY'S OFFICE OF FINANCIAL EDUCATION

    Ms. Gambrell, could you please talk about Treasury's Office 
of Financial Education? And, specifically, please discuss the 
issue of foreclosure prevention scams that are sweeping the 
country in which homeowners are offered the opportunity to 
``fix'' their loan in some way. What is Treasury doing in terms 
of financial education to combat these scams?
    Also, could you please talk more widely about what 
Treasury's Office of Financial Education is doing in the area 
of subprime mortgages, both for families facing foreclosures as 
well as helping future borrowers to avoid the same problems?
    Ms. Gambrell. Thank you for your question, Mr. Chairman, 
and that is a very important question. The Treasury Department 
has been dedicated for a very long time to looking at issues 
related to financial education, and specifically how to reach 
out to those populations that are most in need of that 
education.
    As you know, the Office of Financial Education is comprised 
of 20 federal agencies, including the Treasury Department. It 
was formed specifically not only to develop a national strategy 
that is addressing financial education needs, but then to take 
that strategy and really put it into action. There are about 32 
calls of action that are part of the Financial Education 
Office's national strategy.
    Twenty-two of those come under the leadership of the 
Federal Government to spearhead, and those include working with 
community organizations on the ground to conduct the financial 
education workshops, to ensure that consumers are very well 
aware of predatory lending tactics, which as you know can be 
devastating to both communities and to individuals, and a 
number of other actions specifically addressed to consumers.
    The office just recently received $400,000 in 
appropriations to look at two areas specifically in the area of 
financial education, one targeted to elementary and high school 
students, because, again, certainly getting that education at 
an early age is perhaps one of the most effective ways to 
ensure that people understand not only the cost of credit but 
how to plan their financial future. The other $200,000 is going 
to be dedicated to predatory lending initiatives.
    That particular initiative is still in a conceptual 
discussion and framework right now. Dan Iannicola, who is the 
Director of the Office of Financial Education, however, would 
be happy to provide additional details to the Committee about 
specific efforts going forward.
    I can tell you that, certainly, on this FLEC Committee 
there are member agencies that again have long been dedicated 
to the financial education effort, either individually or as 
part of the Financial Literacy Education Commission, and will 
continue to do so.
    Mr. Serrano. I am sure you meant that $200,000 is dedicated 
against predatory lending.
    Ms. Gambrell. Yes. Did I say ``for''? I hope I did not say 
``for.''
    Mr. Serrano. You said ``for.''
    Ms. Gambrell. For fighting against----
    Mr. Serrano. I hang on every word. [Laughter.]
    Ms. Gambrell. Thank you for the correction.

                     PREDICTING THE HOUSING CRISIS

    Mr. Serrano. You know, a general question, which some 
people would think is better asked of some folks on Wall 
Street. In fact, maybe they are the ones who have to answer it, 
but I want to ask everybody today. How come we did not see this 
coming? Or did we see it coming and not pay attention to it? I 
mean, it seems to have hit the country like--you know, like a 
lead balloon. It threatens our economy. It is, you know, 
creating havoc on American families everywhere.
    It is, in so many neighborhoods, as you know, as we all 
know, hurting people who just got into accomplishing the 
American dream of owning a piece of the pie, if you will. Did 
we see it coming at all? Could we have stopped it?
    Ms. Gambrell. Well, I think that is a complicated question. 
Certainly, I think when you look at the statements that 
Secretary Paulson has made he first mentioned the housing 
crisis back in December of 2006. I think, of course, in 
hindsight it is always easier to wish that you were on this 
issue much earlier, but we feel encouraged by the early 
progress, the efforts that are being put into play now. And I 
think we need to look at all of the strategies, all of the 
approaches, as tools, if you will, that can be resourced, be 
considered resource, and use----
    Mr. Serrano. So we did not see it coming?
    Ms. Gambrell. Well, I cannot answer specifically to that, 
but I think that, again, there were--we were certainly looking 
at this issue and had been studying the issue for a while.
    Mr. Serrano. Right. To you the same question: was there any 
sign of this coming, or that we all missed, and Congress, and 
at the local level, and everywhere else?
    Ms. Parnes. I think I share my colleague's view that that 
is a really--it is a hard issue. I would say from the 
perspective of the Commission, you know, as a law enforcement 
agency, we saw kind of specific issues with specific companies. 
We did not see a prevalent practice across the industry that 
would flag this for us.
    And I think it is probably just because of the way the 
market was--prices were going up, interest rates were down, 
consumers when they, you know, kind of hit the higher interest 
rate time in their mortgages they were able to get other 
mortgages, they were able to refinance. I just do not think 
that we were able to kind of guess what would happen. I think 
it was really hard to crystal ball that.
    Mr. Serrano. You mentioned materials and work that you do 
in languages other than English.
    Ms. Parnes. Yes.
    Mr. Serrano. How many other languages do you deal with?
    Ms. Parnes. We translate our material into Spanish pretty 
regularly. I mentioned this is one of our guides that is in 
Spanish and in English, and it is, you know, all in the same 
brochure.
    In terms of getting our materials into other languages, 
what we do is we get it out to community-based organizations 
who are then able to translate it into the appropriate language 
for their community.
    Mr. Serrano. Let me ask you a question. When you advertise, 
you give advice on TV, for instance, or on radio, do you pay 
for that? Does the Commission pay for that, or does that go on 
the public advertising, you know, that these stations do as----
    Ms. Parnes. Yes, they----
    Mr. Serrano [continuing]. Their part?
    Ms. Parnes. Exactly. We use public service announcements. 
Frankly, it is much harder to get PSAs on television. We are 
pretty successful in radio PSAs, and we use that very 
regularly.
    Mr. Serrano. Yes. I do not want to take too long on this. 
Mr. Regula, I remember years ago you saw a regular number of 
PSAs on different issues all the time on TV. And now you have 
to be up at 4:30 in the morning, which I did as I was reading 
all of this stuff, to watch them. And I know it is all 
business, but you wonder, you know. Maybe that is a question we 
should ask the FCC when they come before us, you know, why this 
time it is not being done.
    Mr. Regula.

                    DEFINITION OF SUBPRIME MORTGAGES

    Mr. Regula. Ms. Gambrell, what percentage of subprime--
well, first of all, define a subprime loan for me.
    Ms. Gambrell. Well, I think there are probably a number of 
definitions that are in the lexicon right now. Certainly, when 
we look at subprime lending we look at whether--the 
characteristics of subprime lending. It can be a high-cost 
loan. It can be one that we would look at the terms and rates 
of that loan. It may carry certain amortization features.
    There is not--there are a lot of characteristics. I----
    Mr. Regula. Is this a recent phenomenon, or have there been 
subprime loans for the last several years?
    Ms. Gambrell. Well, there have been--the subprime loans 
have been within the communities for a number of years, yes.
    Mr. Regula. Why all the excitement now? Is it because the 
real estate market got depressed, and a lot of these were 
predicated on an increasing value of property?
    Ms. Gambrell. Some of the concern, a large part of the 
concern, quite honestly, is that in many of the subprime loans 
people were signing on the dotted line and not fully 
understanding the nature, the rates and terms of those loans. 
They may not have been either clearly explained in the 
disclosure, which is why the Treasury Department is very happy 
to see the Federal Reserve Board tackling this issue through 
the proposed amendments that they are making to Regulation Z, 
which covers the HOEPA Act, as well as Truth in Lending.
    Basically, what that proposal says is that--it is asking 
whether or not there needs to be credit lending standards for 
mortgage products, especially for high priced loans, to make 
sure that the advertising is very clear, and to make sure that 
the disclosure requirements are very clear to the borrower, 
which can be a win-win in the end I think for not only the 
lending, the financial services industry, but certainly for the 
consumer as well.
    Mr. Regula. Do most of these loans have a reset provision?
    Ms. Gambrell. I believe they do, but I do not know the 
extent of, in terms of numbers, what that might be.

                  IMPACT OF SUBPRIME ON CREDIT MARKETS

    Mr. Regula. Is the subprime crisis spilling over into the 
credit card field?
    Ms. Gambrell. Well, you know, what we are seeing, of 
course--and we are monitoring that very closely--we would--in 
fact, we want to be sure that as we look at not only the 
housing market, that we are looking at all sectors of the 
industry.
    And even in that housing market we are focused not only 
just on the subprime sector but also on all at-risk homeowners, 
which is why in the HOPE NOW Alliance we have expanded the 
efforts to target not only those subprime borrowers but at-risk 
homeowners within that population, regardless of whether they 
are 60 days delinquent on their payments, 90 days, and, in 
particular, making sure that everyone is receiving some sort of 
notification to reach out to their services and to counselors 
120 days before those mortgages are reset.
    Mr. Regula. I can see it spilling over. I go by the used 
car lots, and they have big signs out, ``No credit, bankrupt, 
fighting with your wife, come in and see us.'' [Laughter.]
    ``We will give you a loan.'' They make it so attractive, I 
am sure people are getting taken in.
    Question: If the housing market were actually to continue 
to go up--the values, prices, and such--would we still have a 
subprime crisis?
    Ms. Gambrell. That is a great question. And I would have to 
rely, quite honestly, on the economists who work with me to 
answer that question. I do not know if I could answer that 
question in a comprehensive way that would satisfy your 
question.
    Mr. Serrano. Forgive me for--would not the folks who run 
into the second problem, which is the problem where your first 
set of payments were a certain amount, and then it breaks out 
to an amount that you did not expect, that problem would still 
be in place, even if the market was different, right?
    Ms. Gambrell. Well, again, I think with the HOPE NOW 
Alliance one of the things that they are looking at is a fast-
track process, and I think we have to look at all of the loan 
products that are part of this subprime market. Part of that 
fast-track process is to actually refinance to put people in 
fixed rate, 30-year mortgages, or to modify those loans so that 
the starter rate is extended for another five years. So the 
reset, in fact, could change, depending on the workouts that 
are actually completed through the work that the servicers are 
doing with the consumers.
    Mr. Regula. It seems to me these ought to have a big sign 
that alerts people to the fact that there is a reset provision.
    Ms. Gambrell. And that is why the----
    Mr. Regula. There is a period when this is the rate than 
this is what you have the for rest of the mortgage.
    Ms. Gambrell. Yes.
    Mr. Regula. Now people do not look carefully, and the 
credit card industry in particular will tell you, ``No card, 
come on in, we will give you one''--your first payment will be 
6 percent, and then it jumps to 18 or 24 or whatever.
    And payday loans are a recent phenomenon, too. I never saw 
those before.
    Ms. Gambrell. Well, the payday loans are a recent 
phenomenon perhaps to many on the American landscape. You have 
seen various forms of payday loans in communities for many 
years. Some of them are called shark loans, if you are familiar 
with that, certainly. So, again, with payday lending, we want 
to make sure that the consumer really does understand that 
there are alternatives, that there is a traditional financial 
services component that they can use, that they can go to.
    And I think, as you said, Congressman Regula, that the 
disclosure requirement and understanding what people are 
signing and what they are actually committing to is 
extraordinarily important. It is really at the top of the list 
in terms of what the Federal Reserve is looking at, but 
certainly Treasury very much supports amendments that would in 
fact make it clear, make those disclosure requirements clear to 
the public.

                           CONSUMER EDUCATION

    Mr. Regula. I might ask, do you think more education of 
consumers starting early in the public school--elementary as 
well as secondary--would be helpful?
    Ms. Parnes. Absolutely. I think that giving consumers 
information to protect themselves is certainly a better 
proposition than having the FTC or any other government agency 
come in after there has already been a problem. And, you know, 
it is one of the things that we have been working on with the 
Treasury Department, with other partners in government, and 
with folks on the state level.
    We have gone into some states and offered material to 
community colleges. We have gone in, we have done training 
classes in high schools. We prepare consumer education material 
that is geared to high school and college age students. So 
absolutely----
    Mr. Regula. Are education institutions receptive?
    Ms. Parnes. Yes, they are. They are very responsive, 
particularly, you know, colleges have been very responsive. 
First-year college students are bombarded with credit card 
offers, and colleges have been very responsive in terms of 
putting our consumer education material into the--in their 
bookstores when, you know, kids are out there buying the first 
week of school, and they get our brochure.
    Mr. Regula. Have you tried getting this material to the 
unions and let them distribute this to their members?
    Ms. Parnes. That would be a terrific source. I do not know 
if we have actually reached out to unions, but that would be an 
excellent----
    Mr. Regula. That is where part of the problem is.
    Ms. Parnes [continuing]. Excellent way to go.
    Mr. Regula. Other than conventional agencies, maybe people 
that get loans ought to get a brochure warning them, because 
when you go in to get a loan they have got a mountain of 
paperwork, and most people are not going to ever take time to 
read it and be alert to it, read the fine print if you will.
    Mr. Serrano. Thank you, Mr. Regula.
    You know, Mr. Regula had asked a question--my next 
question, which was exactly what we discussed. You know, we 
know--some of us know--that in certain communities, especially 
poorer communities, there have been very innovative ways of 
moving money around, legally, but, you know, lending money, and 
so on.
    But the subprime thing, it almost looks as if someone 
invented a new way of lending money, and no one checked to see 
if that was okay. It appears that way. It might be that 
subprime mortgages may have been around for a while, but if you 
ask the average American, you say ``subprime,'' they will say, 
``Oh, that is a new way of lending money.''
    They do not see it as something that just happened to 
create a problem, which would lead us to ask the question 
eventually, ``So when somebody comes up with a new way of 
lending money, who checks to make sure that it is a proper way, 
so that it does not create the problems we have now?''
    Ms. Kilpatrick.

                  THE CDFI FUND AND SUBPRIME MORTGAGES

    Ms. Kilpatrick. Thank you, Mr. Chairman. And forgive my 
tardiness. We have three meetings I am trying to cover at the 
same time. I certainly want to be here to discuss this crisis 
with you guys, and thank you very much for your service and for 
representing and taking care of many of the people that we 
represent. We thank you very much.
    Last year when we got our budget for '08, and President 
Bush was asking $54 million, give or take, and our Committee--I 
want you to know, and I know you probably do, we upped that to 
some $92 million, and hopefully you were able to take care of 
many more people, and your program is more efficient, and all 
of that.
    So I wanted to acknowledge our Chairman and Ranking Member 
and this whole Committee, as well as the full House.
    Ms. Gambrell. Thank you.
    Ms. Kilpatrick. They were able to sustain that, almost 
doubling what was asked for.
    This year, the '09 appropriation, unfortunately it is much 
lower than $54 million--almost half of that I understand. And 
hopefully we will do better by that, because I think that the 
Community Development Financial Institutions----
    Ms. Gambrell. Right.
    Ms. Kilpatrick [continuing]. Bad timing. You have a poor 
record--you have a good record of taking care of America, and I 
want to make sure you can do that.
    Part of your portfolio is the subprime. Some of your 
portfolio--what percent of it is that subprime? And you do--you 
know, subprime has not always been a bad word, just in the last 
two, three, four, maybe five years. What percent of your 
portfolio is that?
    Ms. Gambrell. When you say ``my portfolio,'' Congresswoman, 
I am sorry.
    Ms. Kilpatrick. As you work with subprime--do not you work 
with subprime customers?
    Ms. Gambrell. Actually, what the CDFI Fund does is its 
mission is really to expand the capacity of financial 
institutions that are specifically serving low-income 
communities. Some of those CDFIs, in fact, are involved in 
conducting foreclosure counseling for subprime borrowers and 
others, quite honestly. It could be home ownership counseling. 
It could be credit counseling. It really runs the gamut.
    So our mission is a little broader in terms of the 
constituents that--the stakeholders that we serve.
    Ms. Kilpatrick. Do you serve communities all across 
America?
    Ms. Gambrell. All across America.
    Ms. Kilpatrick. In all 50 states?
    Ms. Gambrell. In all 50 states.

                        REASONS FOR FORECLOSURES

    Ms. Kilpatrick. I see. Okay. Then, when we talk about the 
problem that we have--and I heard some of my colleagues--the 
Chair and the Ranking--bring it up, why foreclosures? What are 
the reason for foreclosures? You know, obviously, prime and 
predatory lending. This Congress tried to tackle that pretty 
effectively I think over the last decade. Loss of jobs? I mean, 
other kinds of things, or is it the one single reason for the 
foreclosures, I mean, is----
    Ms. Gambrell. I think you see a variety of reasons. And 
certainly one of those could be a loss of employment. It could 
be long-term illnesses. Sometimes, as unfortunate as it is, 
people end up buying more house than they can afford, but may 
not realize it at the time, and sometimes are not necessarily 
anticipating changes in life that may happen and have not 
always been able to secure enough of a cushion to prepare for 
that.
    So there are a variety of reasons of why people go into 
foreclosure. The interesting I think, though, is that when you 
look at the foreclosure starts versus those that are actually 
sold, the foreclosure sales, that that number is very 
different. Less than 50 percent of the people who actually go 
to the foreclosure sales, there is a less than 50 percent rate 
of those sales.
    So through that process, people are constantly trying to 
work out that foreclosure issue. They are working with 
counselors. They are working with community organizations. They 
are working with their church organizations and others. And now 
I think what Treasury has really encouraged through this HOPE 
NOW Alliance is that the servicers, the financial institutions, 
and others who can speak directly to those consumers be part of 
this alliance to work directly with them as well, to do 
workouts, refinancings, loan modifications, and other plans 
that may present alternative solutions for that homeowner.
    Ms. Kilpatrick. Which is going to take--it is going to take 
all of us, 400, 535 of us, being more actively involved in it.
    Ms. Gambrell. Absolutely.
    Ms. Kilpatrick. I think we offer ourselves for that, at 
least this Committee, as we try to educate, you know, getting 
other resources. No doubt at it. Once you get the resources, 
there has got to be an education portfolio that--
    Ms. Gambrell. Yes.
    Ms. Kilpatrick [continuing]. Development financial 
institutions have.

                      EDUCATING AT-RISK HOMEOWNERS

    Ms. Gambrell. And, Congresswoman, if I may, I think part of 
that education also is really encouraging that at-risk 
homeowner to pick up the phone to reach out. It is devastating 
to know that you may be in the position of losing your home. It 
is very difficult to do that kind of outreach and say, ``I need 
assistance.''
    But, again, one of the things that we have been encouraging 
is for homeowners to pick up that phone and to call that 800 
number, which again is 888-995-HOPE, to make sure that they are 
connected to foreclosure counselors who, again, can assist them 
with some options or put them directly in contact with 
servicers. So it also becomes the homeowner's responsibility, 
too. We want to make sure that the homeowners understand that 
they play an important part in this role.
    Ms. Kilpatrick. They pay ``the'' part, as a matter of fact, 
who get the ball rolling in the entire process.
    And in consumer protection, what kind of education programs 
do you see? I know you see a lot of problems. You also had some 
resolve for some of that?
    Ms. Parnes. We do consumer education across the board in 
the financial sector. And as I mentioned, we also--the FTC is 
really primarily a law enforcement agency, and that is our 
focus. And so one of the things that we have seen with the 
recent increase in foreclosures are scam artists trying to take 
advantage of consumers who are facing foreclosure. So there has 
been an increase in what we refer to as foreclosure rescue 
scams.
    And we announced a case today that we filed against a 
foreclosure rescue scam. We have other cases that we filed 
under seal this week, and that we will be releasing soon, and 
yet additional investigations that we have.
    Ms. Kilpatrick. That is very good, and I would like you to 
have some PR on that to let America know that we catch you from 
time to time. [Laughter.]
    Prohibit those who want to become scam artists, because 
that is a very bad situation for everyone to be in. And I think 
the more we hear that we catch them, hopefully the more 
unlikely we will be hearing--
    Ms. Parnes. Absolutely. And if I can also mention, we have 
done--in these regional task forces that we have been 
participating in throughout the country on foreclosure rescue 
scams, there have been outreach conferences that we have held 
in a number of states, and we have really reached thousands of 
consumers who have come to these essentially town hall meetings 
to ask questions and tell us about issues that they are facing. 
And that has been a very effective way of getting the word out 
as well.
    Ms. Kilpatrick. Do you have a way of communicating with us 
all of those--I mean, are we on your websites? Do we have to go 
to yours? Is there some automatic legislative assistance 
between the two that can keep us connected?
    Ms. Parnes. We do. In fact, I know that many of you have 
links to the FTC on your own websites. And we can make sure 
that you do, and if you do not we will get in touch with your 
office.
    Ms. Kilpatrick. Okay. So nobody calls to say, ``It is 
coming, let us do this, let us mobilize this.''
    Ms. Parnes. Oh, we do. We absolutely do. We had--what I am 
remembering is we had a forum about a year ago in New York, and 
we had--members of Chairman Serrano's staff attended. And 
whenever we do these forums, we reach out to the Congressional 
offices.
    Ms. Kilpatrick. Thank you. We would like to be a part of 
it. Thank you both. We appreciate it so much.
    Mr. Serrano. Thank you, Ms. Kilpatrick.
    The Chair would like to note that this is Mr. Bonner's 
second day on the Subcommittee. He has been bright and early to 
both. He is on his way to getting the gold pen at the end of 
his term. [Laughter.]
    Mr. Bonner.

                          SCOPE OF THE PROBLEM

    Mr. Bonner. Thank you, Mr. Chairman.
    And thank you, ladies. Ms. Kilpatrick just asked a question 
referring to the housing crisis. The question I am going to ask 
you in just a minute refers to the housing crisis, and yet 
sometimes we are all guilty of throwing terms around like 
``crisis'' and not necessarily knowing the damage that we may 
be doing to the confidence of those who are not in crisis.
    So I guess my first question is: could you kind of help me 
at least understand what we are talking about in terms of the 
number of people in this country--you know, a few months ago it 
seemed, certainly a couple of years ago, we were bragging about 
the fact that there was record home ownership, and in certain 
demographics in America there was even higher than ever 
expected home ownership. My home State of Alabama, for 
instance, we were proud to be one of the highest home ownership 
among African-Americans in the 50 states.
    So can you kind of put it in perspective for me. I am not 
saying there is not a crisis. But what is the status of the 
people who are in foreclosure? And how does it compare with any 
recent chapters in American history? Not the Great Depression, 
but any recent years or decades, if you could.
    Ms. Gambrell. Are you directing it to me?
    Mr. Bonner. To either one or both.
    Ms. Gambrell. Well, I think to try to put this into 
context, what we are looking at, what the Treasury Department 
is looking at, of course, is--and, again, this is why the 
Treasury has tried to be very active in this area. There are 
1.8 million subprime ARM resets that will be occurring in 2008/
2009.
    The HOPE NOW Alliance servicers have estimated that about 
600,000 of that number people may not be able to afford that 
reset rate of their mortgage. And so we, again, I think are 
looking at efforts that can get ahead of the problem and really 
try to address those issues. How do you help those consumers 
who may in fact be facing those resets? How can you put them in 
different plans, different workout plans, etcetera, etcetera?
    Of the numbers that we have--the HOPE NOW Alliance 
servicers have also looked at, they have also identified about 
1.2 million homeowners who may in fact be able to reapply for 
the fast-track process that would allow for refinancing, loan 
modifications, and other types of strategies to assist those 
homeowners.
    So, again, I think the real question here is not so much 
how big is the crisis, but what can we do to address those 
thousands of owners in fact who may be at risk, who with some 
flexibility may be able to stay in their home with assistance 
from the financial services industry, from the servicers, and 
others, who are involved in this effort.
    Mr. Bonner. And I think that begs the followup, and that 
is, is there a recent paradigm in the last 20 or 30 years where 
we had a similar crisis? And, if so, what was the prescription 
to get us out of that situation then that we might look to to 
get us out of the situation we find ourselves in today?
    Ms. Gambrell. Well, in many ways, I think what we are doing 
now is perhaps even more aggressive in some ways, again, 
because we are really trying to reach out directly to the at-
risk homeowner. We are, of course, still monitoring the 
progress and looking at the early progress of those efforts, 
but also are open to any ideas and strategies and approaches 
that others have as well, because, again, I think the issue is: 
how quickly can we get on top of this problem? And how quickly 
can we address it and make sure, again, that those homeowners 
are paying reasonable mortgage payments and are able to stay in 
their homes?
    Mr. Bonner. And just an opinion based on the conversations 
already taking place, I think education is one of the key ways 
of doing that. The Chairman, the Ranking Member, the Vice 
Chairwoman have all talked about--and you all have responded 
to--in terms of trying to get the public service announcements 
to be our ally in this.
    But not a day passes, I do not think, that any of us do not 
get inundated with offers of free money. Of course, there is no 
such thing.
    Ms. Gambrell. Right.

                         BANKRUPTCY LEGISLATION

    Mr. Bonner. Let me get this question in, if I might. 
Obviously, there are many groups that we are looking to to 
assist us through this housing crisis that we, as a nation, are 
facing. But we also must consider what effects and what result 
will come from our actions to help some that might have a 
negative impact on others.
    Again, in my home State of Alabama, and I am sure 
throughout all 50 states, many families and homeowners, 
especially in rural areas, rely on their community banks in 
their own hometowns, and yet most community bankers have not 
made the subprime loans that other financial institutions have. 
And I for one, and I am sure I am not alone, would be concerned 
that our actions in the Congress, such as the bankruptcy 
legislation that is now being considered in the Senate, could 
put community bankers in jeopardy, and perhaps some out of 
business.
    If bankruptcy judges are allowed to modify the terms of all 
first mortgages in Chapter 13 proceedings, then the increased 
risk borne by community bankers would make home ownership out 
of reach for many people, and much more expensive for others.
    So my question is: if you look into your crystal balls that 
none of us have, how, in you view, would the Senate legislation 
undermine the community banker? And, secondly, how would such 
legislation undermine the effectiveness of Congress and the 
administration's efforts to work on programs such as the HOPE 
NOW Alliance?
    Ms. Gambrell. Congressman, Treasury is studying this issue, 
and, of course, as you know, most of our efforts recently have 
been focused on HOPE NOW. This is an area that falls within the 
jurisdiction of the Department of Justice. Unfortunately, I am 
not able to give you an official position today, because we 
still are studying the impact.
    It is a billeted balance--again, as you have talked about, 
and I think one of the things that Secretary Paulson has stated 
is that we need to be very careful in looking at both sides of 
the issues. On the one hand, consumer protection is one thing 
that we are all advocating for, and we want to be sure is in 
place. On the other hand, we want to make sure that there is 
not a constraint in terms of access to credit and some of the 
unintended consequences that can happen with any steps that go 
forward.
    So all I can, unfortunately, offer you today is that we 
certainly are studying that, and we will continue to study the 
legislation and other legislation that is being put forward.
    Mr. Bonner. Mr. Chairman, I look forward to my gold star. I 
will try to earn it by the end of the year. Thank you.
    Mr. Serrano. You went over your five minutes. We kind of 
took it away for----
    [Laughter.]
    You know, in watching last night's late sports news, I 
found out that the Orioles are having a very good three days in 
spring training. That is the reason for Mr. Ruppersberger's 
glow that you see. [Laughter.]
    With that glow in front of me, I recognize the gentleman.
    Mr. Ruppersberger. You know, he is a good man, but he is a 
Yankee fan, and I am Orioles fan. And we have been down, and 
you are bullying me right now. [Laughter.]
    Mr. Serrano. I am telling you that I root--it is the Red 
Sox I never----
    Mr. Ruppersberger. We are rebuilding.
    Mr. Serrano. I should not say that. I get this room from a 
guy from Massachusetts, so I----
    [Laughter.]
    Mr. Ruppersberger. I am sorry I am late. I commute from 
Baltimore, and the traffic was terrible as it is. Sometimes it 
is, sometimes it is not. Do you have any jurisdiction in 
traffic engineering? [Laughter.]
    And I see also, Ms. Gambrell, that you went to Towson 
University.
    Ms. Gambrell. That is correct, sir.
    Mr. Ruppersberger. So you know the route that----
    Ms. Gambrell. I absolutely do know it.
    Mr. Ruppersberger. The first thing I--and just a couple of 
quick questions, and I think Ms. Gambrell first--and, by the 
way, can we call Mr. Bonner ``rookie''? Would that be 
appropriate? No? We cannot call him a rookie? Okay.
    Mr. Serrano. No, he has been around a while.
    Mr. Ruppersberger. No, I mean on the Committee.
    Mr. Serrano. Oh, on the Committee.
    Mr. Ruppersberger. He came in with me. [Laughter.]

                        COUNSELING AND OUTREACH

    As far as the issue with respect to your program of CDFI 
Fund, part of--a lot of us who represent districts that are 
lower income--and Baltimore City, to give you an example, 
eastern part of Baltimore County--and a lot of times that we 
see that a lot of people that need help are not getting access 
to banks, because banks and the credit unions just are not 
there.
    And I am wondering, you know, do you have any plan how we 
can improve that education and reaching out? I used to be--I 
was in local government for about 17 years, and one of the 
major issues was reaching out, helping people with home 
ownership, trying to counsel. Do we have any plan there?
    The other thing I want to ask you, another question, there 
is always a battle at budget time, but with the cuts that are 
taking place--and there is a lot of the issues, and we have to 
have priorities, the war, and those type of things--what areas 
do you feel that you will have to cut, or are you getting 
signals from the administration that you think you will have to 
cut? And what impact would those cuts have, and how are you 
going to deal with them?
    Ms. Gambrell. Thank you, Congressman. Let me answer the 
first question for you. I think certainly when you look at the 
type of outreach that needs to take place in communities we 
have to--I always say we have to kind of think outside that box 
and go outside the lines, the parameters of those traditional 
ways in which we have done outreach.
    The public-private partnerships are extraordinarily 
important. That means banks working with local governments, 
agencies working with city government as well, can be a very 
effective way to reach those, for example, who are in the lower 
income categories, and who may be using those city services or 
those local services, but also presents a great opportunity for 
people to really understand that they do not have to resort to 
high-cost providers, that there are other ways in which they 
can get that access to credit, that there are traditional ways 
in which the financial----
    Mr. Ruppersberger. One of the things--I know Harbor Bank, 
you work very closely with them. They are doing a good job.
    Ms. Gambrell. Yes, Harbor Bank is excellent.
    Mr. Ruppersberger. There are a lot of people that we are 
not getting to.
    Ms. Gambrell. Right.
    Mr. Ruppersberger. Now, do you think it is more of the 
responsibility of the local government to reach out using----
    Ms. Gambrell. You know what? I think in this environment it 
is everybody's responsibility. And, again, we have seen local 
government participate, but we have also seen a large--
certainly, with Harbor Bank, has been a great advocate and 
working with church organizations, faith-based organizations, 
non-profits, schools. I think everybody has a responsibility 
and everybody has a role to make sure that consumers certainly 
understand that there are a number of options that are 
available to them to make good financial choices.
    Mr. Ruppersberger. Okay. Are you getting any pushback from 
the industry at all, the industry players about what you are 
doing, your program?
    Ms. Gambrell. No, not at all. In fact, they have been 
extraordinarily supportive. And, again, because we--our 
stakeholders are primarily community development financial 
institutions, these are folks, including community banks, that 
are working in the community, including rural areas, but 
primarily low-income areas to create affordable housing 
programs, jobs programs, small--encourage small business 
development, and others. They have been extraordinarily 
supportive.

                            LAW ENFORCEMENT

    Mr. Ruppersberger. Okay. From the FTC point of view, we 
have had a lot of issues. And if this question has been asked, 
just tell me, and I will not go any further. But we know that 
there has been a lot of issues, and it seems that a lot of 
times the mortgage brokers or whatever have been targeted. And 
when you really look at the whole picture, it goes from A to Z. 
I mean, in the beginning it looked like they were caught, and 
it seems a lot of state legislation is focusing on dealing with 
the brokers.
    And sometimes if you do that, and you take away a broker's 
incentives, then they will not go sell, and then you have just 
a monopoly with the banks. And I think it is good to have those 
checks and balances between the credit unions, the banks, and 
also the brokers.
    From your perspective, have any actions or have any other 
areas as it relates to lending institutions--have you focused 
in that regard on where we need to go with this type of a 
crisis that we are in right now?
    Ms. Parnes. Well, the Commission, as I had mentioned, our 
jurisdiction, as you know, is somewhat limited in this area. 
Congress excluded banks, thrifts, credit unions. And we are 
looking at it from a law enforcement perspective. We are 
primarily----
    Mr. Ruppersberger. Oh, you are looking at it from----
    Ms. Parnes. Absolutely.
    Mr. Ruppersberger. Okay. Tell me about it.
    Ms. Parnes. We are a law enforcement agency, and we have a 
history of cases that we have brought against mortgage brokers, 
against servicers, against--you know, we go through the entire 
financial transaction. We have brought cases against debt 
collectors, if consumers are in financial trouble, and owe, and 
their debt is, you know, referred over to a debt collector.
    So we do law enforcement in, you know, kind of the whole--
--
    Mr. Ruppersberger. What is your jurisdiction? Do you have 
the ability to indict or to arrest?
    Ms. Parnes. No, we only have civil--civil law enforcement 
authority. But----
    Mr. Ruppersberger. And where do you bring those? 
Administrative courts or----
    Ms. Parnes. We can bring them administratively before the 
Commission, but most of our cases we bring in Federal District 
Court.
    Mr. Ruppersberger. What do you think we need to do to help 
in this situation? I mean, that is a very broad question, but I 
have only five minutes, so----

                       MORTGAGE DISCLOSURE REFORM

    Ms. Parnes. Right. It is a broad question. I mean, I think 
that from our perspective we will continue our law enforcement. 
We will continue to work with other federal agencies. One area 
that I would focus on--our Bureau of Economics did a study 
about maybe a year ago on mortgage disclosures and found that 
the disclosures were confusing to consumers in the prime 
market.
    They do not understand exactly what they are signing when 
they go to closing. And it is more confusing for people who are 
in the subprime market. So one of the things that I--that we 
thing that--that the agencies in this area should focus on, and 
possibly Congress, is mortgage disclosure reform.
    Part of the issue I think is--that we are facing now is 
that consumers did not really understand that their loans would 
be reset, that they might get big balloon payments. And I think 
they did not understand it because there is a lot of paper that 
you are looking at when you are going to close on a mortgage.
    Mr. Ruppersberger. Let me just stop here because my time is 
up. One comment that I am going to make--and you do not have to 
answer--I am very concerned that sometimes we, as legislators, 
federal, state, and local, overreact to situations. And I am 
concerned about too much overregulation, if it affects those 
people that need help the most.
    In other words, when sometimes we come in to regulate, then 
they will not lend in subprime areas. They just will not do it. 
So eventually the people that are trying to help that need help 
do not get help because the banks will not do it, or the 
mortgage brokers will not do it, because they feel so 
overregulated.
    So I think it is--I hope you are looking at that to make 
sure you advise financial services committees, and things like 
that, on what really the end game should be to help those 
individuals.
    Mr. Serrano. Thank you.
    The Chair would recognize the distinctive, charming, 
debonair, bilingual, Mr. Kirk.
    Mr. Kirk. Muchas gracias, Sen'6or.

                          SCOPE OF THE PROBLEM

    Just to get a perspective, I have been looking at this a 
lot, studying it a lot, and, ironically, as a Republican came 
to the same conclusion as Chairman Dodd on this issue over on 
the Senate. My understanding--we are trying to get a scope of 
the problem.
    My understanding of the rough numbers are these. The value 
of homes in America, $20 trillion. Value of home mortgages in 
America, $10 trillion. Values of ARM subprime mortgages, $1 
trillion. Value of subprime mortgages, 90 days late or more, 
$300 billion.
    You talked about how we had roughly 600,000 borrowers in 
deep distress, and I understand the average loan size for them 
is $150,000, so that would mean you have an urgent $90 billion 
problem, 1.8 million homes in jeopardy.
    So looking at the overall situation, the good news is 97 
percent of mortgages are okay, and 3 percent are not. And my 
understanding is the situation we faced in 1934 was 52 percent 
of mortgages were 90 days' arrear or more. So this problem is 
15 times better than the Great Depression, but still a $90 
billion urgent problem and a $300 billion six-month problem. 
You can see why it is destabilizing the market.
    For HOPE NOW, I just had my staff call the number to do a 
reality check, and got a two-minute answer. So that is good, 
and I understand you are up to 4,000 a day in calls. But 
according to The Wall Street Journal, we have had only about 
10,000 people actually helped by HOPE NOW in December and 
January. And if we take the 1.8 million mortgage holders who 
are resetting in the next six months, and you have 130 working 
days, that means your call volume, if they were to be helped by 
HOPE NOW, would go from 4,000 a day to 14,000 a day, to handle 
the problem.
    I understand we have got about 2,200 foreclosures per day 
happening right now. I am worried, though, that we are not 
getting the full scope of the problem, because the Journal also 
reports FDIC is bringing back retired employees, because we are 
facing 100 bank failures in the next six months. And Fannie Mae 
just reported a $3.6 billion loss for the fourth quarter of 
last year. And if you look at the balance sheet, it is income 
insufficiency on their loans for Fannie Mae right now.
    So my question is this: it would appear that more 
aggressive action is necessary, because you have made a start, 
but at 4,000 a day you are running at around 25 percent the 
rate you should be running to handle this problem. And given 
the size of the capital problems, etcetera, we have an urgent 
$90 billion problem, and a long-term $300 billion problem.

                     HOME OWNERS' LOAN CORPORATION

    When I look back, you know, you were asked, you know, what 
other times have we taken federal action to really correct this 
problem? And I see two key examples, which is the RTC and the 
Homeowners Loan Corporation.
    And Alex Pollack, who is the former President of Federal 
Home Loan Bank Board for Chicago, and then Alan Blinder, a 
great economist, both say that we ought to restart the 
Homeowner's Loan Corporation. And I particularly favor that, 
because I think it was a brilliant federal intervention in 
buying distressed mortgage securities for 1934, 1935, and 1936 
only, and then managing the portfolio.
    My understanding is we have about 600,000 foreclosures a 
year anyway in a good economy, so you managed the portfolio, 
and then they repaid President Eisenhower the full capital, 
plus a $14 million profit, in 1953, and closed the institution. 
And so it was a key short-term federal instrument. We did not 
make the Federal Government the number one mortgage purchaser 
in the country permanently. And we effectively eliminated the 
panic-pain premium of what was happening to the housing market 
in the mid-1930s, which is where so much damage is caused.
    So can you describe, what is your thinking on where I and 
especially Chairman Dodd are going? What is your thinking on 
where Alex Pollack and Alan Blinder are going? And it 
dramatically affects this Committee, because what we are 
calling for is a $10 billion appropriation from this 
Subcommittee in this year to get this rolling.
    And I do say, while rebate checks are politically popular, 
the market is destabilizing on the mortgage issue alone, and so 
a reassurance of this size and this nature, it would appear to 
me, would be the wise course. But give me your thoughts.
    Ms. Gambrell. Congressman, thank you for your question. The 
Treasury Department is studying the proposal on the loan 
corporation that is being, of course, studied throughout the 
country right now. And we are looking forward to learning more 
about the proposal.
    I think you also know that we are open to new ideas, new 
perspectives. The administration has--and the President has 
said that it opposes a federal bailout, and so I think Treasury 
needs to look very closely at the proposal, be able to comment, 
give its suggestions and recommendations on what it believes 
will actually help address some of these issues.
    Of course, when we look at the solutions, we want to make 
sure, again, that we are targeting the at-risk homeowners. And 
even the plans that we have in place now are not targeted to 
investors or speculators. So I think it is going to be very 
important for us, as we go forward, in the Department and 
certainly throughout this country as we look at these different 
proposals, to make sure that whatever proposals are adopted are 
in fact ones that are addressing those at-risk homeowners.
    Mr. Kirk. I would just say, Mr. Chairman, that with the 
term ``bailout'' politically charged, and in the case of the 
HLC intervening in the Depression Era mortgage market, which 
was 15 times worse than this, is the U.S. taxpayer was repaid 
capital with a profit. So there was no bailout. It was the 
panic premium that we eliminated. And when a lender forecloses 
and takes an illiquid asset and no functioning market, you go 
to zero on the value of the asset.
    The HLC entered in--my read on what Alex Pollack has told 
us is that generally the lender took a 20 percent hit, not a 
100 percent hit. The restructured security benefitted the 
family who remained in the home. And by the way, the local 
school district and the town kept the taxpayer in the home. And 
the neighbor did not have a boarded up piece of property 
depressing their property value, and it turned out not to be a 
bailout at all. It eliminated a panic, a penalty, that the 
market was creating.

                          SERVICEMEMBER LOANS

    Let me just--one last thing. I am worried about our active 
duty military as well on the scam side. We understand that the 
VA-backed loans for military have gone from around $250,000 
loans to less than $120,000, a real drop. And that is rated 
because the VA limit is still set at $417,000, which it 
provided now an opportunity for scammers to come in to offer 
military families these adjustable rate and unstable marketing 
provisions for active duty military.
    Has the FTC looked into this? We looked particularly at the 
surrounding and military base market, and protecting military 
families.
    Ms. Parnes. We actually do have a program geared to the 
military. We work very closely with both the JAG and their 
financial counselors on almost all military bases, and we work 
with them. It is actually one of the reasons that we initially 
got into payday lending, because we heard that there were all 
of these payday lending outfits that were setting up right 
outside the military bases. So we are very focused on that.
    I do not know if we have heard specifically of this issue, 
but I will check on that.
    Mr. Kirk. Thank you. Just it looks like the VA loan limits 
are out of date, which is----
    Ms. Parnes. Okay.
    Mr. Kirk [continuing]. Giving an opportunity for the 
scammers, and so forth.
    Ms. Parnes. Okay.
    Mr. Kirk. Thank you, Mr. Chairman.
    Mr. Serrano. Thank you. Thank you.
    Something either wonderful or scary is happening today on 
this panel, and that is the Republicans are asking exact or 
similar questions as the ones I have in mind. [Laughter.]
    I do not know what that means. But, you know, you bring up 
an issue when you say ``bailout'' that I brought up, and 
amongst the four or five things that could cause me trouble in 
my own Congressional district, this is one of them. And that is 
when Mrs. Rivera or Mr. Smith have asked for $60 in food 
stamps, maybe people have said, ``She needs food stamps because 
of her lack of personal responsibility, and it got her to that 
point.'' Unfair as it is, that is the statement.
    But when the same person or someone else bought a house 
that they maybe could not afford, the country is now asked to 
bail them out or to do something else. Now, I know that the 
difference is that one is a question of a human being having 
more to eat, which is dramatic enough. The other one has 
repercussions throughout the economy, and a lot of people were 
duped and are totally innocent.
    But it is just interesting how some of these issues play 
against each other and they are seen differently, because, yes, 
there were people who were duped, but it was also in a way--I 
am now going to get into real trouble--part of this ``me'' 
generation where you have to have a bigger place than the 
person next to you in some cases, you know, and that also got 
people into messes.
    Of course, that--I do not know how you regulate that. What 
we have to do is make sure that the ones who honestly went out 
there to be part of the American dream that we keep talking 
about do not get hurt, which brings me, Ms. Gambrell, to the 
HOPE Program.

                   LIMITATIONS OF HOPE NOW INITIATIVE

    You say there are 1.8 million people who are in danger 
right now, we see as being in danger.
    Ms. Gambrell. 1.8 million reset----
    Mr. Serrano. Reset.
    Ms. Gambrell [continuing]. Resetting of the loans.
    Mr. Serrano. Now, the HOPE Program will cover certain 
folks, but it does not cover other folks whose mortgages reset 
before 2008, and so on.
    Ms. Gambrell. Correct.
    Mr. Serrano. So what will we do to deal with their issue? 
And I want to be--notwithstanding my other sarcastic comments. 
I want everybody covered and protected. How do we deal with 
those?
    Ms. Gambrell. I think, again, you have to look at all of 
the different approaches that are being used and all of the 
different tools that are being used, the organizations that are 
being involved--that are involved as well in trying to address 
this issue. As I had mentioned earlier, NeighborWorks America 
was just recently awarded $130 million to housing and 
foreclosure counseling agencies across this country to help 
those agencies as well deal with the problems on a local level.
    The Treasury Department is focused, looking ahead at the 
current situation, but also looking ahead at what potentially 
may arise as well, Chairman Serrano. But I do think, again, we 
have to look at all of the remedies that may be available, if 
it is not from Treasury, then through other means and 
organizations as well.
    Mr. Serrano. Thank you.

                    FTC V. MORTGAGES PARA HISPAN'6OS

    The FTC recently had a case that included--that was the FTC 
v. Mortgages Para Hispan'6os--that is Mortgages for Hispanics--
--
    [Laughter.]
    Dot com, that is dot com. [Laughter.]
    And I often wonder, what happens if a person was named 
Dorothy Com? Could we call her Dot Com? [Laughter.]
    But what was that case about? I understand that was the 
case of a mortgage broker who allegedly promised one set of 
loan terms verbally in Spanish, but had customers sign English-
only closing documents with different, less favorable terms. Of 
course, that goes into the whole area of cheating the consumer, 
but it is specific to this issue also. What happened there?
    Ms. Parnes. Right. Well, that is exactly right. The outfit 
was pitching its services to----
    Mr. Serrano. And that was their actual name?
    Ms. Parnes. Yes. Yes.
    Mr. Serrano. They did not even have an English language 
alternative name?
    Ms. Parnes. That was their name. That was their--that was 
their name. And they were obviously pitching their service, 
their product, to Hispanics. They did business in Spanish. They 
would sit down with consumers and explain the entire 
transaction in Spanish, and the actual loan documents had 
different, less favorable terms, and those documents were all 
in English.
    Certainly, I mean, that is----
    Mr. Serrano. It was blatant.
    Ms. Parnes. Yes, a very blatant scam.
    Mr. Serrano. What is going to happen to them now? Will you 
refer them to the----
    Ms. Parnes. Well, no, we have actually taken action against 
that company, and that case has been resolved. Unfortunately, 
as in many--as in at least some of the cases we bring, most of 
the money was gone. We were able to get a judgment for 
$250,000, which was, you know, the extent of consumer injury, 
but the individual only had $10,000.
    We have accountants who look very carefully at the ability 
of our defendants to pay up, and that is all we could get, so 
we got $10,000 from this individual.
    Mr. Serrano. Did they go to jail?
    Ms. Parnes. We do not have criminal authority.
    Mr. Serrano. Well, I know you cannot send them to jail, but 
can you refer it to someone----
    Ms. Parnes. Right.
    Mr. Serrano [continuing]. Who would?
    Ms. Parnes. We do. We do refer these cases. We have 
actually a Criminal Liaison Unit, CLU, that works very closely 
with U.S. Attorneys Offices. And when there is conduct--we talk 
to AUSAs throughout the country and try and get them interested 
in cases. And sometimes it is harder, because some of these 
cases are--just fall below the threshold that a U.S. Attorneys 
Office needs to be able to get an indictment and get a 
conviction.
    Mr. Serrano. Mr. Regula.

                              SPECULATORS

    Mr. Regula. In your judgment, what percent of the subprimes 
are speculative versus people who really want to get that first 
home? I am talking about the second home people, people who are 
in the subprime on the basis of growing value of real estate. 
It seems we have got two groups here. We have got people who 
want honest to God help and then we have got those who were 
playing the market, and yet probably expect us to ``bail them 
out.'' What is your evaluation of subprimes?
    Ms. Gambrell. Congressman, I do not have those specific 
numbers, but I can certainly get those for you. And you are 
right; there is a tier certainly of speculators and investors 
that are involved in this entire discussion. Unfortunately, I 
just do not have the figures with me today.
    Mr. Regula. Well, I do not think it is our job to get them 
out of a bad judgment anymore than if you buy a stock and it 
goes down.
    Ms. Gambrell. And Treasury supports that as well.
    Mr. Regula. But you do not offhand have any----
    Ms. Gambrell. I do not have them with me today, but we can 
certainly get them to you.
    [The information follows:]

              Subprime Data on Investors and Second Homes

    Some estimates suggest that about 8 to 9 percent of subprime loans 
were made to investors or those who bought a second home. Based on 
readily available data, of the estimated 1.8 million active subprime 
adjustable rate mortgages resetting in 2008 and 2009, roughly 160,000 
are investor/2nd homes. However, this data may underreport the true 
number of homes bought as an investment, since some homeowners claimed 
second or investment homes as primary residences to obtain easier 
financing.

    Mr. Serrano. We do not know how to single them out as such, 
do we? Because I fall where he falls. A person who was duped 
into buying a house, especially their first home, I know 
families in the Bronx--for instance, I was telling Mr. Regula--
where the brother and the sister, you know, are both married 
and everything, bought together, you know, they moved into this 
two-family house because they could afford the $3,000 a month 
that they split, and that was tough.
    And then, when the first reset came in, they cannot afford 
it. They lost it. That person I want to do whatever we need to 
do to help, and to get at the people who did that to them. But 
if a person already had a house and was buying one for the 
weekend, you know, I am not--I do not think I should be 
worried. Well, if there are criminal acts involved, of course I 
have to be worried. But I think you know what I am saying. We 
are here to protect those who were hurt, not those who were 
playing the market and took a chance.
    We have votes going on now. You have been a wonderful 
panel. We have a second panel coming. So we will submit the 
other questions for the record, and we will excuse this panel 
and thank you----
    Ms. Gambrell. Thank you.
    Mr. Serrano. And congratulate you on the work you do. We 
know this is difficult. We will be staying in touch with you to 
see how together we can help folks who need help, and I thank 
you also for your work with Spanish-speaking folks throughout 
this country.
    Ms. Parnes. Thank you, Chairman.
    Mr. Serrano. Thank you so much.
    We have three votes, a 15-minute, a 5, and a 5, and then 
after that we will come back. So it is roughly 20 minutes.
    [Recess.]
    Mr. Serrano. We will reconvene.
    We may not be joined by a lot of members because the House 
decided to call it quits before the big storm comes. Political 
storm. [Laughter.]
    Mr. Serrano. There are a couple of bills on the floor that 
are, you know, causing some drama.

                                PANEL 2

    We will now proceed to our second panel of witnesses, and 
we apologize for the delay. We had three votes over there. We 
lowered taxes, right?
    Mr. Regula. Did we? I thought we increased it. [Laughter.]
    Mr. Serrano. Wow, there is a change here.
    Michael Calhoun is president of the Center for Responsible 
Lending, a nonprofit research and policy organization which 
works to protect home ownership and to eliminate abusive 
financial practices. Janet Murguia, an old friend, not old in 
age.
    Ms. Murguia. Thank you. [Laughter.]
    Ms. Murguia. Will you get that on the record, please? 
[Laughter.]
    Mr. Serrano. Old in service.
    Is the president and CEO of the National Council of La 
Raza, the largest national Hispanic civil rights and advocacy 
organization in the United States. Among many other efforts La 
Raza has also worked to increase home ownership and to 
eliminate predatory lending.
    Chris Stinebert is president and CEO of the American 
Financial Services Association, the national trade association 
for the consumer credit industry. The association has nearly 
350 active members ranging from large national financial 
services to small, independently owned consumer finance 
companies.
    And last but not least--yesterday you had someone from 
Ohio, right? I have someone from the Bronx.
    Mr. Regula. Where's that?
    Mr. Serrano. Last but not--the Bronx?
    Mr. Regula. Yeah.
    Mr. Serrano. It is where we buy all of the stuff you grow 
on your farm. [Laughter.]
    Mr. Serrano. I told him when I first met him I thought 
everything just came from the supermarkets. I did not know it 
came from the farm.
    Mr. Regula. We are working on him. [Laughter.]
    Mr. Serrano. Last but not least, Greg Lobo Jost is deputy 
director of the University Neighborhood Housing Program and a 
member of the Board of Directors of the Neighborhood Economic 
Development Advocacy Project in the Bronx, New York, USA.
    Mr. Lobo Jost is active in creating, financing, and 
preserving affordable housing for the residents of the 
northwest Bronx and the 16th Congressional District represented 
by that charming and debonair Congressman Serrano.
    Thank you all, and we are very much appreciative of your 
time with us. We really do appreciate it. We again apologize 
for the delay, and we will start with Mr. Calhoun.

                      Michael Calhoun's Testimony

    Mr. Calhoun. Thank you, Mr. Chairman and Ranking Member 
Regula and members of the Committee.
    Mr. Serrano. And for a moment we will remind everybody that 
all of your testimony will go into the record. That is our nice 
way of saying please keep your statement down to five minutes.
    Thank you.
    Mr. Calhoun. Thank you for your invitation today. As you 
mentioned, the Center for Responsible Lending is an affiliate 
of Self-Help, which is a subprime mortgage lender. We are also 
a CDFI. We have been making first-time home loans to borrowers 
who did not qualify for conforming loans for more than 25 
years.
    Over the last five years we have made $4 billion of 
financing available for first time home buyers in 48 states 
across the country. We actively participate in the secondary 
markets, and prior to my current position as president for 
Center for Responsible Lending, I headed up those programs for 
Self-Help. So I have personally been involved in those lending 
endeavors.
    I am going to address three things very quickly here and 
try to respond to questions that have come up from the previous 
panel, and those are, first, what is the scope and depth of the 
current mortgage crisis or situation.
    Second, what were the causes that got us here? What were 
the types of loans? Why are so many of them going bad?
    And then third, very quickly, what are some of the 
remedies?
    On the scope, to be clear, many industry experts in our own 
projections are that over the next two years more than two 
million families will lose their homes to foreclosure, not 
enter foreclosure, but actually lose their homes. That works 
out to more than 20,000 per week, and that is an accurate 
reflection of what is happening right now in the market.
    Depending on how long this hearing lasts, probably several 
thousand additional families will lose their homes as we speak 
here today, and when we get into the questions, I can talk 
about some of the specifics. Some of the numbers you heard 
before were about small segments of the families at risk, not 
the overall picture, and those numbers, for example, are from 
Moodysresearch.com. They are a leading housing economist. Our 
numbers, core logics, they are pretty close to consensus 
numbers in the market.
    That is obviously causing great disruption not just in the 
housing market, but in the whole economy as recent GDP figures 
certainly confirm today.
    Let me tell you about the typical loan that got us into 
this. The typical subprime loan which you have heard is this 
so-called subprime hybrid ARM where you had a fixed rate for 
two or three years, usually two, and then the rate went up. It 
had some notable features.
    One, the rate could not go down. So those borrowers, while 
their rates may not go up as much with the current Fed rate 
going down, their start rate would not go down.
    The start rates were referred to as teaser rates, but that 
is a little bit of a misnomer. The average initial rate on 
these mortgages was about eight and a half percent, not a 
bargain rate of some of the one or two percents that you heard 
in some of the crazy ads.
    There were other factors that made these loans so risky, 
which were that they were underwritten so that the initial 
payment could be up to 55 percent of the borrower's gross 
income, not even take home pay, but gross income. They did not 
look at whether the borrower could even afford the increased 
rates.
    Half of the loans had no documentation of the borrower's 
income, and one of the most critical factors and one of the 
real gimmicks that we're paying the price for now is that 
three-fourths of these loans had no escrow for taxes or 
insurance. It was a way to make the monthly payment look lower 
to the borrower, but then it creates this crisis when your 
taxes come due, and that actually is triggering a lot of the 
foreclosures.
    To be clear, Ms. Gambrell was talking a lot about the rate 
resets. Over half of these foreclosures are happening before 
the reset because what had previously happened was borrowers 
were able to refinance even before the reset, for example, when 
they got their tax bill. But now with decreasing housing 
prices, that refinance escape option is no longer there.
    Let me talk about the remedies. First, we have supported 
and participated in the HOPE NOW programs, the various AFSA 
Programs. We support all of those, and they are critical, and 
they will make a difference.
    In our view, they will not be enough, not for lack of will 
and not for lack of good intention, but because of structural 
obstacles that are built into the market today. This isn't like 
when your local savings and loan made your loan. If you had 
problems, there was somebody you could go down the street and 
talk to.
    Today not only are these loans sold into the secondary 
market. No one owns the whole loan. They are sold into 
different slices of the rights to cash flow for these 
mortgages. For example, they even sell separate securities that 
are funded just by the prepayment penalties on the loan. That's 
the only thing that funds that class of securities.
    So it is a little bit like sending cattle to the 
slaughterhouse and then deciding after the fact you want to put 
it back together and move the cow to a new pasture. It is very, 
very hard to do.
    There are a couple of other structural obstacles that we 
have not been able to overcome. Over 40 percent of these 
mortgages have second mortgages in addition to the primary 
mortgage. To modify, you have got to satisfy both of those 
liens in some way, which is extraordinarily difficult to do. 
Just the logistics of it, the first mortgage holder is saying, 
``Why should I take a discount to benefit the second mortgage 
holder?'' and the second mortgage holder saying, ``Why should I 
get out of the way to benefit the first mortgage holder?''
    You have a couple other structural obstacles. Servicers 
generally are not paid to do modifications. Industry figures 
are it costs about $750 to $1,000 for the work to carry out a 
modification. Foreclosures are sent to third parties who carry 
them out, and those costs are reimbursed.
    And finally, not surprisingly, the threats of lawsuits 
where security holders have told servicers that if you modify 
these mortgages, you may hurt the value of my securities. Not 
all classes will be affected equally, and those classes have 
threatened to sue servicers if they do too many modifications.
    Recent numbers are if you look at, for the subprime hybrid 
ARMs, which have been the worst performing loans, that for the 
fourth quarter there were about ten foreclosures for every loan 
modification, and that is not, again, due to lack of will, lack 
of effort. It is these structural obstacles.
    So what do we support? One that has been mentioned here 
today, and I want to be clear about the details of it, is a 
modification to the bankruptcy code to allow a court ordered 
modification if, and only if, the lender and servicer do not 
offer their own modification. That is an eligibility threshold 
that you have to get past.
    I would note we did the exact same thing in the mid-'80s 
when we had a very similar crisis in the farm world where farm 
prices appreciated rapidly and then deflated and the farmers 
could not refinance their loans. This exact same approach was 
used. It did not raise the cost of credit. It saved a lot of 
family farms.
    I want to thank you again for holding this important 
hearing, and I would be happy to answer any questions that you 
have.
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    Mr. Serrano. Thank you.
    Before we go to Ms. Murguia, I want to thank you because I 
think you quickly put in place how these things worked, and we 
have been trying to find that out all day, and you made it 
clear how it was that people were invited to participate, if 
you will.
    I also for the record want to state that we had finished 
the last panel dealing with the issue of people who had the 
American dream, you know, destroyed for them or are in danger 
of having it and those who bought a second home or a situation 
where, you know, maybe we should be concerned, but we should 
not necessarily be involved in what is bailing them out versus 
the ones who were hurt. And it was made clear to us by a person 
from Treasury on my way out the door that the HOPE Program 
takes that into account. It deals with primary residents as an 
issue rather than people just speculating on what was a great 
market at that time.

                       Janet Murguia's Testimony

    Ms. Murguia. Good morning. Thank you.
    My name is Janet Murguia. I am president and CEO of the 
National Council of La Raza. AT NCLR, we have been committed to 
improving the life opportunities of the nation's 40 million 
Latinos for the last four decades. In fact, this year we are 
celebrating our 40th anniversary as a very American institution 
in this country.
    I would like to thank Mr. Chairman Serrano for inviting me 
and all of us to participate this morning. We do appreciate 
your very diligent work on behalf of Latino families, and I 
thank you for being a champion on funding for CDFIs and for 
opposing many damaging anti-immigrant amendments, and thank you 
for bringing attention to this issue today.
    NCLR is deeply concerned that a generation of Latino wealth 
is under attack, and the status of the Latino middle class is 
in danger. NCLR has been working hard to plug gaps where 
mortgage lenders fall short.
    Through our housing counseling network we serve more than 
30,000 borrowers every year. Later this year NCLR plans to 
launch a campaign to prevent foreclosure among low income 
families. We understand what it takes to build wealth in Latino 
and immigrant communities.
    Today's hearing is very timely. Household debt, 
foreclosures and report of fraud are on the rise. We must 
protect consumers in addition to improving the quality and 
quantity of credit available to all families.
    This morning I will briefly discuss the major barriers that 
open our community to abuse, areas where consumer protection 
fall short, and recommendations for congressional action.
    Let me begin by saying that all Americans rely on financial 
products to help them reach the middle class. Safe and 
affordable credit is necessary to buy a car or home. Unequal 
access to credit has perpetuated the wealth gap between 
minority and white households. Latino borrowers are unique. For 
example, 22 percent of Latinos do not have enough information 
in their credit file to produce a FICO score. This is compared 
to only four percent of whites.
    About 35 percent of Hispanic families do not have basic 
checking or savings accounts. Many Latinos rely on abusive 
payday loans and check cashiers to pay their bills and make 
ends meet.
    Most creditors do not look favorably on such 
characteristics. In fact, many Latino families are steered to 
more expensive credit cards, car loans, and home loans even 
when they have good credit.
    Allow me to give three examples. Credit card issuers look 
at credit scores, the number of credit cards a family has, and 
their combined card balances when pricing credit. Many Latinos 
do not even have credit cards. This means that regardless of 
whether they pay all of their bills on time, when they do get a 
card, it is more likely to be an expensive one.
    In fact, Latinos are twice as likely to have a credit card 
interest rate higher than 20 percent as white borrowers. 
Similarly, discrimination in auto financing costs Hispanic 
borrowers hard-earned money. One report showed that 57 percent 
of Hispanic borrowers were charged inflated interest rates 
compared to 40 percent of white borrowers.
    And it is the same story with mortgages. Our families are 
more than twice as likely as whites to receive certain high-
priced, high-risk loans that are now going into foreclosure at 
record rates. This pattern of abuse is troubling considering 
the rate at which Latinos are entering financial markets. 
Hispanic credit card use is increasing. Latino home ownership 
hit an all time high in 2006.
    This is a good sign for our community. However, we are 
concerned that their gains are being eroded by financial 
predators. Despite the evidence, consumer protections have not 
kept pace with demand. I would like to share with you three 
areas where consumer protections fall short.
    Shopping is nearly impossible. Most credit transactions are 
not transparent. Consumers do not have the tools or the 
information to determine what they are really paying for 
credit. Borrowers get expensive loans even when they have good 
credit. Taking into account a borrower's history of timely rent 
and utility payments is seen as a burden. So instead, lenders 
push Latino and minority borrowers into pricey loans.
    Third, borrowers are trapped into cycles of debt. There are 
few options for borrowers desperately seeking relief from high 
interest rates and abusive fees. Many turn to balance transfers 
or mortgage refinances, but for most families this does not 
bring relief; just more debt and fees.
    Compounding the impact of these gaps in protections, 
reports of fraud are on the rise. The FTC found that Hispanics 
are more than twice as likely to be victims of fraud as whites. 
The current mortgage crisis shows the impact of predatory 
lending expands far beyond targeted communities.
    Congress must act, and I am going to offer just briefly 
four recommendations as I close. The Federal Reserve and other 
regulatory agencies must issue stronger rules against predatory 
and unfair practices. Congress should investigate abusive auto 
loans through oversight hearings and studies.
    Federal agencies, credit card issuers, and local consumer 
protection agencies should partner with local community 
organizations to raise awareness of financial scams.
    And finally, Congress should create a financial counseling 
program to provide financial advice to low income families. We 
believe it is important for Congress to act. We appreciate you 
all looking at this issue now because there is no question 
that, while some of the regulators earlier today talked about 
looking backward and saying that it was hard to look in 
hindsight at this, we know, for instance, that Latino 
foreclosure rates are going to peak in '09 and 2010. There is 
no excuse for us to not take action now knowing that this is 
going to be on the horizon.
    So we appreciate your looking at this and welcome the 
chance to talk to you later about it.
    Thank you.
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    Mr. Serrano. Thank you.
    Mr. Stinebert.

                      Chris Stinebert's Testimony

    Mr. Stinebert. Good morning. My name is Chris Stinebert, 
and I am the president and CEO of the American Financial 
Services Association.
    AFSA's 350 member companies include auto finance companies, 
credit card issuers, mortgage lenders, industrial banks, and 
other financial services firms that lend to consumers and to 
small businesses. We do not represent or try to represent the 
payday lenders in our association.
    Let me state from the outset that we share Congress' 
concern about the growing number of homeowners who are having 
difficulty making their mortgage payments. Not only do 
foreclosures affect individual borrowers and their communities, 
they also affect mortgage lenders who lose, and I think Mike 
Script says $40,000. Mike and I were talking that the average 
could be up to 65 or $70,000 on every single foreclosure that a 
lender makes today.
    So today I am going to limit my remarks to four major 
issues. First, in today's tight credit market, liquidity 
remains the key to providing credit. To maintain liquidity, 
policy makers should avoid imposing new mandates and policies 
and regulations for mortgage lending that create uncertainty 
for investors, especially if applied retroactively.
    Second, I would like to emphasize the importance of the 
voluntary nature of the partnership efforts between lenders and 
consumers who face financial difficulty.
    Third, I will focus on the growing importance of consumer 
understanding of lending products in general and mortgage 
products specifically through personal finance education 
programs.
    And, fourth, the possible use of federal resources to 
encourage at-risk borrowers to contact their lenders to learn 
what assistance is available to them.
    Let's start with certain market liquidity, which is the key 
to lenders' ability to provide affordable credit to consumers. 
Many borrowers with less than perfect credit have found it 
extremely difficult to get a mortgage or to refinance their 
home. The Federal Reserve's recent rate cuts have improved 
liquidity and made credit more affordable, but maintaining 
liquidity remains a primary concern for investors, both foreign 
and domestic.
    Investors rely upon certainty and stability. Proposals that 
impose new terms and conditions on existing mortgage contracts 
would make investors even more resistant to reenter the credit 
market. And legislation that would allow bankruptcy judges to 
rewrite mortgage contracts on primary residences would do just 
that.
    A better course of action is to provide an open and 
voluntary pathway for borrowers and lenders to work together. 
Mandating workouts, on the other hand, would only serve to 
restrict credit.
    AFSA believes the right way to provide relief is through 
the current outreach campaigns that are now underway. As 
Treasury talked about this morning, AFSA is a founding member 
of HOPE NOW Alliance. Fourteen HOPE NOW servicers responsible 
for more than 33 million home loans, or about 94 percent of 
prime and subprime mortgages, reported that in the last half of 
the year 545,000 subprime mortgage holders were helped in the 
second half of the year. So far 324,000 prime borrowers have 
been helped as well, for a total of 869,000 prime and subprime 
homeowners.
    All too often distressed homeowners do not contact their 
lender. They will not open letters. They do not answer phone 
calls. If they only understood that the sooner contact is 
established between the homeowner and the mortgage servicer, 
the sooner a workable solution can be found.
    As this Committee considers how to best appropriate funds, 
we strongly encourage you to augment the private sector's 
efforts to convey this important message. A major part of any 
solution must include financial literacy. We learn things in 
school that we never ever use, and yet very few students ever 
receive any formalized instruction or personal education on 
personal finance, lessons that would be used every single day 
of their lives.
    It is time to prepare the next generation of financial 
services customers with a clear understanding of the lending 
process and the savings process, just everything involved with 
consumer education and begin at a very early age.
    One example is AFSA's Education Foundation's personal 
finance curriculum, MoneySKILL. More than 80,000 high school 
students have enrolled in this Internet-based course, which is 
available free of charge for anyone.
    And finally, it is worth noting that this hearing comes at 
a time when Congress is considering proposals to stimulate the 
housing sector. One way Congress can directly help at-risk 
borrowers is by creating a temporary home ownership tax credit. 
Not so long ago Congress offered this type of tax credit to 
homeowners in the District of Columbia, and it was extremely 
successful.
    A national tax credit would encourage home buying activity, 
stop the slide of home prices, reduce the current existing 
inventory of homes, and get America out of its housing slump 
faster than imposing any new regulations that might affect the 
next time we are down the road.
    Thank you for this opportunity to participate today, and I 
look forward to answering any questions you might have.
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    Mr. Serrano. Thank you.
    Mr. Jost.

                       Greg Lobo Jost's Testimony

    Mr. Lobo Jost. First I would like to thank Chairman 
Serrano, Ranking Member Regula, and the other members for 
inviting me here today to testify.
    I am speaking today on behalf of the University 
Neighborhood Housing Program. We are a 25-year-old nonprofit 
housing group in the Bronx working to create, approve, and 
finance affordable housing throughout the Bronx, and I am also 
on the board of directors of the Neighborhood Economic 
Development Advocacy Project, and both of our groups, we put 
together different maps to help kind of illustrate different 
things that are in the written testimony that I submitted if 
you wanted to follow along and look at any of those.
    Without a doubt there is a need for stronger consumer 
protections in financial services, especially in low and 
moderate income communities of color that in the past were 
victims of redlining. The Bronx is entirely too familiar with 
redlining, as this practice led to the borough's notorious 
incendiary reputation.
    While the Community Reinvestment Act has helped immensely 
to turn around the fortunes of places like the Bronx, the 
residual effects of redlining have led to abusive lending 
practices often referred to as reverse redlining.
    Traditional banks continue to have a relatively small 
branch presence in our neighborhoods, opening up the door to 
fringe financial institutions. For instance, it is three times 
as hard to find a bank branch in the Bronx as it is nationally, 
and in fact, our borough's many Puerto Rican born residents are 
much more likely to find a bank branch back on the island than 
they are in the Bronx. And within the borough they are 
obviously concentrated in higher income areas.
    One way in which the Subcommittee could address this 
shortage of financial institutions is by funding the CDFI Fund 
to promote the growth and expansion of community development 
credit unions. We have two such credit unions in the Bronx, and 
they serve their communities well, but they obviously are not 
reaching a lot of neighborhoods. And it is these same 
neighborhoods that are specifically targeted by subprime and 
predatory lenders.
    At UNHP, we have performed outreach, intake and referrals 
to many struggling Bronx homeowners over the last decade. More 
recently, many of those calls have come from new homeowners who 
never could have afforded their home, and others, many of whom 
are senior citizens, have owned their homes for a long time and 
can no longer afford them because of an unsavory refinance.
    Our own research has shown that in 2007, the majority of 
Bronx homeowners going into foreclosure were not the victims of 
2/28 or 3/27 ARMs resetting. I think it was about 65 percent of 
the loans going into foreclosure last year were less than two 
years old.
    This exemplifies the extent of atrocious underwriting in 
recent years, where huge numbers of loans were made without 
regard to the borrower's ability to repay. The proliferation of 
the securitized secondary market has made this all possible 
through its blatant lack of accountability. This lack of 
accountability needs to be corrected, and in order to truly 
protect consumers, currently Senator Dodd's bill, S. 2452, 
stands out as the best bill to help fix our broken mortgage 
system.
    The House equivalent H.R. 3915 contains certain strong 
protections for consumers, but falls short of the Dodd bill on 
the critical issue of assignee liability, something which gives 
distressed borrowers recourse against the current holder of 
their loan so they can effectively fight foreclosure.
    On the funding side, our neighborhoods need more counselors 
and legal services. Sadly, we have had to scale back our 
outreach efforts for homeowners because there are no counselors 
who have the time to see them in the Bronx. There are only two 
in the entire borough right now, and this is a borough of over 
1.3 million residents, and these two individuals and their two 
respective agencies have no chance of keeping up with the 
growing tidal wave of foreclosure that is coming their way.
    We also need consumer protection against the exorbitant 
interest rates that come with refund anticipation loans. Once 
again, it is the same neighborhoods that are targeted, and the 
financial effects are devastating as tens of millions of 
dollars meant for low and moderate income families struggling 
to literally pay the rent are being siphoned off every year 
just in our area.
    Again, it is these same communities where households 
receive and depend upon the earned income tax credit that these 
loans are targeted and flourish. And, in fact, the federal 
government is subsidizing tax preparation companies and their 
national lender partners by allowing them to take advantage of 
folks living on the edge who are desperate for cash.
    Congress can change all of this by requiring the IRS to 
band refund anticipation loans on Earned Income Tax Credit 
dollars. Congress can also act by ending federal preemption of 
state laws that would, in effect, do away with such predatory 
loan products. It is no wonder that at least in New York only 
national banks make these loans. State laws and banking 
regulations prohibit such high interest rates. So only banks 
not subject to these rules can offer such predatory products.
    Another big problem is bank accounts containing federal 
benefit income, like Social Security and veterans benefits 
being improperly frozen by predators. Federal banking 
regulators should require banks upon receipt of a garnishment 
notice to make a determination whether an account contains 
exempt federal benefit funds, and if it does, the bank should 
refuse to honor the restraining notice.
    Currently the fixed income residents who have had their 
accounts frozen improperly are subject to bounced check fees 
and even eviction as they are unable to make payments because 
of these improperly frozen funds.
    And that is all I have to say, and thank you again, once 
again, for having me here.
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    Mr. Serrano. Thank you.
    Before we go into the order of questioning, I just wanted 
to ask you a question. I always say that we members of Congress 
assume that we know all of the subjects. That is because no one 
dares to ask the question that people would laugh at.
    So let me ask the question of the day that people will 
laugh at. When the local tax preparer gives you a refund 
anticipation loan, is that from their own funds or do they work 
with somebody else?
    Mr. Lobo Jost. Yes, they work with another bank, an outside 
bank, and I do not know all of the banks that do it, but it is 
only national banks that do not come under state jurisdiction. 
HSBC, I think they have some new leadership, and they are 
deciding that the new leadership does not think that this is a 
good loan product.
    Mr. Serrano. Getting out of the business.
    Mr. Lobo Jost. Yes, they are going to stop offering that.

                              WALL STREET

    Mr. Serrano. Okay. Mr. Calhoun, in your testimony you state 
that Wall Street has played a major role in the subprime mess 
by encouraging subprime lenders to ignore whether their 
customers could actually afford the loan. What, if anything, do 
you believe Congress should do to address this issue and what 
might the Appropriations Committee specifically do, and tell us 
how Wall Street did that.
    Was this high level meetings they had or was it just a 
behavior pattern that began to grow? How did they encourage 
people to do this?
    Mr. Calhoun. It was financial incentives. There is a well 
known quote that was in the financial trade press from the 
president of a subprime lender, and he put it this way. He 
said, ``Wall Street will pay me more to do a no documentation 
loan than they will pay me to do a fully documented loan. Which 
do you think I am going to do?''
    Mr. Serrano. Explain that to us. How does that work?
    Mr. Calhoun. How it works is that it sort of happened from 
both ends. For example, a broker typically makes higher fees 
for considerably less work on a no doc. loan, where there is 
not documentation of the income, and again, most of these loans 
were to people with just regular salaried jobs. They've got a 
W-2. You know, these are not self-employed folks who have to 
dig up extensive tax records, and what most of them did not 
realize is they paid a heavy premium. Usually in the subprime 
market if you did not bring in your W-2, you might get your 
loan a little faster, but they raised the interest rate on the 
loan a full percentage point.
    Well, that extra percentage point went part to the mortgage 
broker, part to the lender, and part to Wall Street. And so at 
least in the short run everyone was making more money.
    Well, now that these loans are foreclosing, everybody is 
getting hurt by that practice, but that is an area where I do 
think our federal regulators are moving the so-called ability 
to repay, and I think there is consensus within the financial 
industry that loans should not be made when there is no 
reasonable ability for the person to repay the loan absent 
winning the lottery.
    Mr. Stinebert. Not to disagree, but to give a little bit of 
a not just product specific or reasons, but more of a macro 
reason for why Wall Street was so amenable to this product is 
it really goes back to the dot-com buzz and all of this money 
left dot-coms and was looking for a home. Real estate and dirt 
has always been the most reliable, stable thing that you could 
put investments into.
    You had a huge amount of investments coming from overseas 
where savings in China and in India were looking for 
investments. Where do you invest it? You invest it in the 
United States, which is the most stable, safest market to 
invest in, and real estate being the most stable of those 
markets.
    So you had huge amounts of capital that were available. 
Now, that caused other people to put together programs and to 
look at buying deeper certainly into the subprime area than 
they ever had before, but it started with the huge availability 
of funds that were not there previously.

                            RATING AGENCIES

    Mr. Calhoun. And we would agree that there was a glut of 
worldwide capital during this time, and then the other thing 
that needs mentioning is the guardian of the security of this 
was supposed to be the rating agencies. They were supposed to 
look at these loans and evaluate their credit worthiness.
    They were also in a difficult position. They are paid by 
the companies issuing these securities, not by investors, and 
there was a lot of pressure to grade these as triple A 
securities. If you had $100 million of loans, you would get $80 
million of triple A securities. It is more profitable the more 
triple A securities you get.
    So, for example, at one point they ignored whether a loan 
had a second mortgage or not. If you had an 80 percent loan 
with a 20 percent second mortgage, the rating agency treated 
that the same as an 80 percent loan where the borrower had put 
20 percent down.
    Well, most lenders think that there is a real difference in 
those loans.
    Mr. Stinebert. I think we would all agree that everyone was 
lured by the steady appreciation of homes and had a dependence 
on that it would continue
    Mr. Serrano. Thank you.
    Ms. Murguia, when was the last time I called you Ms. 
Murguia?
    [Laughter.]
    Mr. Serrano. Janet.
    Ms. Murguia. I do not know, Mr. Chairman.

                           STEERING PRACTICES

    Mr. Serrano. As I told the first panel, I am deeply 
concerned by the fact that it is minorities who have been 
overwhelmingly hurt by this mortgage crisis. It appears that in 
many instances mortgage companies aim their dishonest practices 
directly at minority communities. I would like to ask you about 
the practice known as steering, in which mortgage loan officers 
have a personal financial incentive to steer applicants toward 
loans that are not necessarily in the best interest of the 
applicant.
    A Wall Street Journal article last December reported that 
more than half of the people who received subprime loans during 
2005 had credit scores that would have qualified them for prime 
loans.
    So could you please comment on the practices of the 
mortgage loan industry and the financial incentives given to 
loan officers. What needs to be done to address this issue? 
What should we be looking at over here?
    And you just happen to have a La Raza wire?
    Ms. Murguia. No. Look. The steering practice is one that we 
have been very concerned about, and you know, we understand 
that our research and analysis, there are different factors 
that we are looking for in predatory lending legislation, but 
on the anti-steering provision, you know, you should not be 
able to put families in more expensive and risky loans simply 
because they walk into the wrong bank branch and maybe only 
sell subprime loans or have nontraditional credit profiles.
    So bankers and brokers should be obligated to sell loans 
that families can afford to repay, and we think there needs to 
be more Wall Street accountability, too, because Wall Street 
played a role in funding some of these poor loans.
    But we have to make sure that there are the right 
protections in place and accountability in place with these 
financial institutions so that they are not allowed to move 
people into these bad loans. Obviously we are seeing the result 
of that here today in terms of where we have seen this 
foreclosure crisis.

                            HOPE NOW PROGRAM

    You know, I wanted to comment briefly on the HOPE NOW 
Project because while it is commendable and outreach is great 
and appropriate, you know, what we have seen is that calling 
the servicers does not necessarily guarantee assistance either. 
We know that the Wall Street Journal reported that only nine 
percent of borrowers who called HOPE NOW got a workout, and 
that which includes the repayment plans and modifications.
    So servicers cannot keep up with the demand, and we need a 
streamlined approach that would automate how for many of the 
most vulnerable families.
    Anti-steering provisions would help in terms of ahead of 
time, you know, affirmatively looking at what could be 
potential problems. You know, we sponsor a home ownership 
counseling network program that has been in place for ten 
years. We know that prevention programs like that keep us out 
of this problem.
    But when there is no accountability and all of these 
measures are voluntary, I would argue that while it is 
commendable that they are voluntary, that is not good enough 
knowing what we know now, especially when it comes for us where 
we are able to document and show research of what the 
implications are going to be for Latino families.
    So even when you talk about educating a future generation 
of borrowers, that's commendable, too, but, Mr. Chairman, Mr. 
Regula and Mr. Bonner, Rome is burning. We know that there are 
problems right now, and for us to not take specific measures, 
whether it is expanded refinance options or loan modification 
criteria, that we can take now because we know we are going to 
be bumping up against this.
    You know, people have talked about it as tsunami. We have 
gotten the warning wave here, and we know that it is coming 
again, and it is going to hit, in particular, certain families, 
and we should not just rely on voluntary measures.
    We can look at anti-steering and home ownership counseling 
efforts that prevent that, but we need to take specific 
measures now that allow these families to have some relief.
    Mr. Serrano. Well, that was my next question for Mr. 
Stinebert. We know that the HOPE Program is voluntary, an 
agreement. So how much of a solution is it, and what more needs 
to be done by us?
    Mr. Stinebert. Well, it is voluntary in nature, and yes, 
they are not 100 percent participating, but I would say 94 
percent of the lenders and servicers involved in the industry 
in mortgage subprime and mortgage market is pretty good 
participation for any voluntary program.
    And working with the Treasury Department and what they are 
trying to do is take, as you pointed out earlier, you have 
taken people that were investors and others that were looking 
at flipping and second homes and tried to look at those people 
and not necessarily put together programs that are going to 
help those people.
    There are other people that can certainly go into a reset 
and we are very knowledgeable about what they had gotten into 
and certainly have the finances and the income available to 
make those payments, and then, as was pointed out to us 
earlier, there are about 600,000 that are going to be coming up 
for reset in the next year that truly need help, and we are 
really trying to focus our efforts on those people that not 
only need help, but that will benefit from help and stay in 
their homes.
    I think when you talk about alignment, and you talk about 
how we got into some of this mess earlier on, there was not 
necessarily the alignment that there is today with the lenders 
and the incentives that they have in order to prevent a 
foreclosure or keep a homeowner in their home and what you had 
before.
    Right now everybody has parallel alignment. They have all 
of the same incentives. We also have the same goals to have as 
few foreclosures as we possibly can because a foreclosure, as 
we said, costs much more than a workout or an extension or a 
modification is going to cost to keep that person in their 
home.

                           STEERING PRACTICES

    And to address a little bit on the steering issue, we 
should not forget that some steering has certainly benefitted, 
whether it be Fannie Mae or Freddie Mac or even Congress who 
wanted to encourage lending in certain areas, wanted banks and 
others to put some incentives so that people would go into 
those areas and specifically go into markets that were perhaps 
under represented and gave incentives specifically for that 
purpose.
    Of course, steering, no one condones steering, of putting a 
person in a mortgage that is not as good as one they might 
qualify for, steering away from a prime mortgage product into a 
subprime product. That is not what we are talking about.
    But some steering course has been encouraged by home 
ownership groups and community groups throughout the country to 
try and increase participation in certain areas.
    Mr. Serrano. Well, you, Mr. Stinebert, seem to look at the 
glass as half full, and that is fine. But there has been 
steering that has hurt people and created major problems. 
Wouldn't you agree to that?
    Mr. Stinebert. I agree. When steering has occurred and in 
many cases I think it was mentioned this morning. As much as 
lenders would like to cite mortgage brokers and all of the 
things that they have done to possibly steer homeowners or 
borrowers into certain products and misrepresentation, I think 
that they were working as representatives of the industry. 
There are many, many good brokers out there, and there are 
others that did this.

                           FINANCIAL LITERACY

    Well, we know that there are many cases that we all know of 
where abuses have occurred. We are certainly not trying to 
defend those abuses. But one of the primary areas, and I think 
we can all agree on talking about fixes and solutions or areas 
that need to be worked on, is the area of financial literacy. 
It is an abomination, quite honestly, that most people can get 
through high school and have never had one course or one hour 
of instruction on financial literacy or personal finance.
    Yet they take course after course of things that they will 
probably never use again in their entire life, but they do not 
spend five to ten minutes talking about financial literacy. If 
there is an area that we can all improve upon the----
    Mr. Serrano. I am finally in total agreement with you. I 
totally agree with that. I agree.
    I have a couple more questions, but I am going to ask Mr. 
Regula to.

                JUDICIAL MODIFICATIONS TO MORTGAGE LOANS

    Mr. Regula. Thank you, Mr. Chairman.
    The idea that is kicking around the Senate that gives 
bankruptcy judges the ability to reform mortgage I think would 
set a very dangerous precedent because if that were the case, 
where do you stop? The bankruptcy judge would be substituted 
for a negotiation between the borrower and the lender, and as a 
matter of principle, I think that to be bad business. What do 
you think, Mr. Stinebert?
    Mr. Stinebert. I think when people look at it, I think it 
looks as if it would be helpful to current people who got into 
a bad situation and might go into bankruptcy.
    But I think when you look down the road and you look at the 
cause and effect of changing the bankruptcy law in this way 
would actually result in, it would definitely result in more 
expensive loans at a higher interest rate.
    Now, we can sit here and debate on how much higher, whether 
it be one percent or 100 basis points or 200 basis points as 
some have indicated, but it is definitely going to be an 
increase in interest rates. Now, why?
    It is pretty simple. If you are going to have to sell these 
loans to investors and they have no idea what they are buying 
because some third party down the road can change the terms and 
change the contracts, then you are not really buying contracts, 
are you? You do not know what you are buying.
    So therefore, investors would shy away from these products. 
It would definitely increase the loans. We talk about, and I 
think Michael mentioned that in the farm and in vacation homes 
and second homes, that judges are allowed to do this. Well, 
there is a reason why the interest rates are 100 to 150 basis 
points higher for each of those loans, too, and part of that is 
because they can do this.
    Now, if you want to strap future home buyers with that 
penalty to help the current people that might have problems, I 
think it is very short sighted of Congress to consider it.
    Mr. Regula. Wouldn't it also result----
    Mr. Calhoun. If I may add just quickly, very briefly, that 
independent folks who have looked at this come to far different 
conclusions. Moody's has looked at this specifically and 
concluded, number one, that it would not raise the cost of 
credit going forward, and number two, that this one measure 
would save nearly 600,000 families that we are talking about 
right now from foreclosure.
    They regard it as the most important measure that can be 
taken right now--this is Moody's--that would protect families 
from foreclosure and stabilize the housing market and the whole 
economy. Jack Kemp has come out and written editorials 
endorsing this for the same reasons, that it would help the 
economy.
    Because the key is this is a very targeted provision. It is 
only available if the borrower can show that the house would 
otherwise be foreclosed on. And so the choice is not 
foreclosure. It is not one of these deals where I can go into 
bankruptcy and say, ``I just want a better deal.'' You have to 
demonstrate to the court that this house would be foreclosed 
upon unless I got a modification. The modification is limited. 
If the lender offers one, then you are not eligible.
    And then you have to complete a five-year plan before you 
get to keep the modification. If you do not complete the plan, 
the lender gets to foreclose with their full lien. They lose 
nothing. So we are a lending----
    Mr. Regula. What are the elements involved in your plan?
    Mr. Calhoun. There are IRS guidelines that say this is your 
living allowance. Every penny above that has to go to pay your 
creditors. You can not get any additional credit during that 
five-year period without specific court approval. It is a very 
onerous plan, and this provision is not changing the 2005 
bankruptcy code.
    And one of the ironies is here we actually--there was a 
period from the 1978 enactment of the bankruptcy code through 
1993, when we actually had an experiment in this country. But a 
third of the districts in the country interpreted the 1978 law 
to say mortgages could be modified.
    And it was not until 1993 that the Supreme Court looked at 
it and said, ``No. We believe the law is that you cannot modify 
the mortgage.''
    But the key is rates did not go up in 1978 when that was 
enacted. There was not a difference in rates or availability of 
credit in the different jurisdictions depending upon whether 
they have this narrow modification available and rates did not 
change after the decision.
    Again, borrowers cannot walk in and say, ``I want a two 
percent mortgage.'' They have to pay at or above the prime rate 
on the mortgage. There are very tight limits on this.
    I agree if you said the judge can come in and rewrite any 
mortgage for no good reason that would be very adverse to the 
economy and to the mortgage market, but we are a lender. We 
have a billion and a half dollars of loans outstanding that 
would be subject to this provision. So we believe in it both 
for protecting borrowers in general and as a good provision for 
us as a lender.
    Mr. Regula. Mr. Stinebert, do you want to comment?
    Mr. Stinebert. Well, I think, Michael, to be honest you 
have to point out that in Moody's and in his testimony there 
were four others that testified exactly the opposite to what 
Moody said. They were the only ones that said that it would not 
be a substantial increase in interest rates. So there was 
definitely disagreement there.
    Mr. Regula. Somebody has got to pay, and if the judge is 
going to modify my mortgage, then the next person that gets the 
mortgage is going to have to pay a little more to make up that 
loss.
    Mr. Stinebert. I think you have to ask yourself if you are 
an investor would you purchase mortgages that you do not know 
whether you have a contract with.
    Mr. Regula. Well, that is right.
    Mr. Stinebert. Now, I know there have been lots of 
modifications and somewhat compromises to make this more 
palatable to people, and as much as that is appreciated, many 
people certainly in the House and in the Senate remember those 
ten years of negotiations and sometimes contentious issues that 
were to have the bankruptcy laws that we have today, and it 
was, I think, very smart that originally when they excluded 
mortgages or at least primary residents from being able to 
allow a cram-down, that it has resulted in lower interest rates 
for all consumers, and that is across the board.
    Even though you look at trying to do this and isolate it as 
they have to subprime and others, you are bringing uncertainty 
into the marketplace. It is making it less stable, and it is 
already not that stable as it is. We do not need to introduce 
new criteria into it.
    Mr. Regula. Wouldn't every court be a little different 
depending on the disposition of the judge? Would there be any 
guidelines as to what Court A in New York could do versus Court 
B in Texas in terms of modifying this mortgage contract?
    Mr. Stinebert. Congressman, that is one of the major 
concerns, is that it would be uneven as far as----
    Mr. Regula. I would think so, depending on the judge.
    Mr. Serrano. Mr. Bonner has come back when most Members, 
Mr. Chairman, went home to take care of their district needs. 
He came back. He is working on his gold star in attendance.
    Mr. Bonner.
    Mr. Bonner. Mr. Chairman, I would like to also apologize. 
The reason I go over my five minutes is because I am from 
Alabama. It takes us a little bit longer to get our words out. 
So I apologize to my distinguished, debonair, and what were the 
other words you used? Handsome, brilliant Chairman. [Laughter.]
    Mr. Serrano. I did not say handsome. You say handsome.
    Mr. Bonner. And I mean it, too.
    Mr. Serrano. Yes. Well, try thinking in Spanish and 
speaking in English.
    Mr. Bonner. Yes, sir.
    Mr. Regula. You have got to move up about three chairs.

                       TAX CREDITS FOR HOMEBUYERS

    Mr. Bonner. This is a great panel, and I know that you see 
more empty seats than you see seats filled, but your advice and 
your testimony today is very timely and also very insightful to 
all of us because we are all looking to try to come up with a 
solution.
    Ms. Vernon, there is a tsunami out there. I live on the 
Gulf Coast. We know more about hurricanes than tsunamis, but 
the point is it is a serious matter.
    Mr. Stinebert has offered one possible solution based on 
the D.C. model, and I thought in your written testimony you 
elaborated a little more. If you could give us a little bit 
more food for thought, and then if we could get the three other 
panelists to comment on that, if we could get a unanimous 
agreement just among the four of you, I think that would be 
helpful.
    Mr. Stinebert. Well, if for a moment you would take your 
focus off of the foreclosure issue, just as that as a separate 
issue, we all realize that families are losing their homes, and 
that is a terrible thing. But what I think everybody can agree 
upon is that the only way this is ever going to end is when the 
housing market stabilizes. The housing market stabilizes when 
people out there which can purchase a home decides that the 
depreciation or the decline in home prices has bottomed.
    And as soon as they know that basically the depreciation 
has hit its bottom, that is the best time to buy because then 
prices are going to go up again. So the sooner we can hit that 
bottom, the sooner that people can start purchasing homes. The 
sooner that people that are possibly entering foreclosures have 
an exit plan.
    I mean, let's face it. The exit plan that people bought 
into those homes was not only refinancing, but they could 
always resell their home in a matter of weeks before. So it was 
not necessarily difficult for them to sign on the dotted line 
on a mortgage. Number one, they could refinance tomorrow. If 
that did not work, they could sell it the next day and possibly 
make a profit.
    So we need to give an exit plan to people that possibly 
could be entering foreclosures, and the best exit plan I have 
heard of focuses on the housing industry of giving a tax credit 
to anybody who purchases a home, not just subprime, but all 
purchasers of a primary residence.
    It worked in Washington, D.C. when they did it, and there 
is no reason why it cannot work around the rest of the country. 
It is a stimulus that I think would really work as opposed to 
some of the other stimuli that are being discussed.
    It would put money in people's pockets immediately, 
something that would encourage people to purchase homes 
tomorrow, and we could start getting back to where we need to 
be as far as housing being a good resource, if not the best 
investment, a good investment for people to make.
    Mr. Bonner. Any other panelists have any opinion about 
that?
    Ms. Murguia. Well, I think I would have to claim a conflict 
of interest since I am looking at buying in the District right 
now. [Laughter.]

                     STABILIZING THE HOUSING MARKET

    But that is officially for the record disclosed in the area 
of transparency.
    But look. I think we all agree that there are important 
steps that we can take to stabilize the market, and we should 
be doing that if that is going to help in the long term or 
midterm. But what you have heard, I think, from a lot of us on 
this panel is there are immediate priorities and steps that we 
should be taking, and you know, I would argue that allowing 
them to be completely voluntary is not going to get us there, 
and if we are not specific about some of those steps, and we 
can make them targeted, I think we can show that those would 
have more immediate impact in dealing with this really.
    But you know, tax credits, can they be helpful in 
stabilizing the market? Of course they can, but I am not sure 
that is going to provide the immediate relief that we know we 
need right now.
    Mr. Calhoun. I think we agree on the problem, and that is 
that you need to stabilize the housing market, and it is good 
ol' supply and demand. It makes sense to work at it from both 
sides. The most cost effective way is to reduce the number of 
houses, additional houses, that you are dumping on the market.
    I mean, I think everyone agrees it is a lot, lot more 
efficient economically to keep someone in the house if that is 
feasible, and it is not for all of these folks facing 
foreclosure by any means. It is a lot more efficient to keep 
someone in the house than to go through foreclosure, have that 
house be vacant, subject to depreciation and damage, and then 
try and get a new owner in there. It just takes a lot more 
money at a time when money is particularly scarce.

                         HOUSING AFFORDABILITY

    Mr. Lobo Jost. One thing that kind of complicates it in the 
Bronx and throughout New York City where we still have really 
high housing prices is there is a huge affordability problem 
and people living in the house even before the whole 
foreclosure crisis, you had people who, like, it is typical for 
people to pay half of their income on their mortgage and on 
renters as well.
    So you know, we are not at the point where the prices have 
really dropped yet, but we are still seeing a lot of 
foreclosures. So in terms of stabilizing, I guess New York City 
is as stable as it is, but it is still an issue. I mean, there 
are still people losing their homes even with prices staying 
where they are because we do not have the population that has 
the income to afford the prices at what they were because these 
homes for a typical Bronx residence were never affordable at 
the price they were selling at because the prices went up so 
dramatically, so quickly.
    So you know, it is kind of tough for me to say anything 
more than that other than that the people are not going to be 
able, at the prices that they are now, people are not really 
going to be able to afford them unless we can bring down some 
of the other costs of owning a home.
    That is one of the things that we have been kind of working 
on, but that is kind of outside of the whole mortgage area.
    Mr. Bonner. Thank you, Mr. Chairman.
    Mr. Serrano. Thank you.
    And I share your comments and your concern because, you 
know, I live right there on the grand concourse near Yankee 
Stadium, and there are a few buildings that are co-ops, and you 
used to be able to get an apartment for $50,000. The same 
apartments now are selling for $300,000, and so they are not 
being bought by any of the folks that are there. New folks are 
moving in.
    That is fine. I do not have a problem with that, but there 
is something wrong with the fact that the folks who were there 
who would like to buy the apartment in the building next to 
them cannot.
    I was just telling Mr. Regula. He was amazed. On 164th 
Street in the middle of the South Bronx with everything that 
you read about it, although we never see it because we love the 
place, but you know, an apartment just sold for $525,000, a two 
bedroom apartment, and that is ridiculous. That is before the 
new stadium goes up, you know, and values just shoot up.

                           MORTGAGE SERVICING

    One question that I had, I was in a mortgage for the last 
15 years where I started paying out to one company and every 
couple of years somebody would write to me and tell me that I 
had now somebody else to make the check out to. What is the 
incentive for these folks selling the mortgage?
    You end up over the life of a mortgage, you know, having 
six different people or organizations, companies that you end 
up paying to. What is the incentive, anyone on the panel, for 
selling these mortgages off? Is it just a matter of taking the 
money up front and they then go collect the mortgage?
    Mr. Calhoun. I think it is a reflection. Servicing is sold, 
I mean. When it is transferred, the company giving it up is 
paid something for it, but it is a reflection of two things 
that are relevant here.
    One is just there has been consolidation in the financial 
services industry. Much more a few large lenders were 
controlling so much of the business.
    And the other that is very relevant here is that servicing 
is a very high volume, low margin business. You don't get paid 
a lot to service a loan, and you have to have a huge volume of 
it to make it profitable. And that, unfortunately, is a 
challenge here because the servicers are not set up to do these 
widespread modifications, and asking them to take on that extra 
work onto a very thinly profitable business is a challenge.
    There have been improvements, but, for example, a typical 
ratio would be you might have one employee per servicer or case 
worker for every 450 mortgages. Now if a significant percentage 
of those are in distress now, that is just very difficult to 
respond even with the best of intentions and the greatest 
effort, and that is one of our concerns about the voluntary 
modification.
    The system was not set up to handle this, and unfortunately 
there are a lot of characteristics of the system that make it 
very difficult for it to respond to this crisis.
    Mr. Serrano. I wanted to make a comment on what Mr. Bonner 
has said, and Ms. Murguia knows this well. There are folks here 
who are listening to this testimony or that testimony that goes 
into decisions that we make on the bill. You should never see 
empty chairs as a sign that no one is listening. Trust me. 
Everyone is listening in more ways than we care to think about.

                         MULTIPLE FAMILY HOMES

    Mr. Jost, I am wondering on the number, on the record 
keeping, if something is missed here. When we say 1.8 million 
families stand to lose their homes, does that take into account 
the fact that in some communities, I know for a fact a couple 
of folks in the Bronx, where two brothers married with children 
will jointly buy a house, a two-family home. So if they lose 
that home, it is really two families that lost their home.
    I mean, I know this is just numbers, but are we changing 
the crisis in terms of numbers by not taking into account the 
fact that some people have doubled up in buying homes?
    Mr. Lobo Jost. I mean, I do not know. I cannot speak 
outside of the Bronx, but definitely there are a lot of cases 
like that, a lot of immigrant families who buy two and three 
family homes together and share it amongst themselves, and you 
know, multiple families living in one home, and we have a lot, 
as you know, two and three family homes.
    So I do not know if there is any data. I do not think there 
is any data on that, but you could definitely assume that in 
certain areas where that is common that you are talking about 
more families that are going to be affected by this.
    Then there is also the issue about rent. People who are 
renting in the apartments as well could be forced out in the 
case of a foreclosure as well. I think that has become a big 
issue as well.
    Mr. Serrano. In other words, this would be where I buy a 
house, a two-family house, and I rent one of the apartments to 
help me pay the mortgage, and then when I lose it or I am gone, 
that person also cannot rent there any longer.
    Mr. Lobo Jost. Right, depending on what happens. I mean, if 
they are going to sell ahead of time, then it depends on the 
new owner, but potentially they could be thrown out. But if it 
does go into bank-owned REL, then the person has generally been 
kicked out.

                       REFUND ANTICIPATION LOANS

    Mr. Serrano. Talk to me about these refund anticipation 
loans. You know, from day one when I saw that I said, ``Is this 
really, you know, of benefit to the community? Is this 
something that should not be taking place?''
    How do some of these loans work? And how much of a problem 
is it in areas like the Bronx?
    Mr. Lobo Jost. I mean, it is definitely targeted as you can 
see on some of the maps like in certain neighborhoods, and 
these are the same kind of low income neighborhoods that get a 
lot of money through the Earned Income Tax Credit, and I think 
that that is partly why they are targeted there, because, you 
know, low income people really count on that money from their 
tax return, Earned Income Tax Credit, as part of their income.
    People generally speaking are really maxed out, and they 
are paying their rent or they own a home and that's half of 
their income right there. And so they have got very little 
leftover money, and you know, it is right after Christmas time. 
You are probably spending a little bit extra if you want to 
have presents and do other things for the holidays, and so then 
in January you have got to pay these bills, and so you need the 
extra cash to kind of pay off some of these debts.
    And so the idea, obviously it is changing a little bit. I 
do not know in terms of we are working to get the word out. It 
used to take longer to get your refund back, but now I think 
with E-file and everything it is quicker, but still there is 
the idea like, well, we need to go to these places and get the 
money as fast as possible.
    A lot of people go and file their taxes as soon as they get 
their W-2s and they want to get the money like in hand right 
away. And I do not think they understand because it is such a 
short-term loan like what the interest rate is. I mean, these 
are often like 600 percent interest rate loans.
    Mr. Serrano. Six hundred?
    Mr. Lobo Jost. Yes, if you annualized it. So obviously that 
is why that would not be allowed under New York State banking 
and lending regulations, but like I was saying, they are 
targeting areas where people are getting the Earned Income Tax 
Credit because they get bigger refunds. So there is more money 
to be made off those people's tax returns even though they are 
very low income people. They are going to get a bigger check 
back because of the credit, and so that is a bigger slice of 
the pie that they can take out and make more money off it.
    Mr. Serrano. Have you heard of any anticipation loans 
having to do with the tax rebate that Congress and the 
President just approved?
    Has anybody--oh, did I just give somebody an idea for a 
scam? [Laughter.]
    Mr. Regula. I am sure they thought of it.
    Mr. Serrano. I cannot believe I thought of that.
    Mr. Lobo Jost. Well, last year they were doing these 
holiday loans, which was pretty much like a refund anticipation 
loan, except they were offering them in December so that you 
could do your Christmas shopping based on your tax return from 
the year before and then maybe some pay stubs, and so they were 
for a longer term, but this was just another horrible product.
    There was some organizing work done against them, and they 
decided they were not going to offer any more. So I do not know 
if they are going to try to do something on these.
    Ms. Murguia. Mr. Chairman, you highlight sort of scams that 
people can encounter at the front end. I would just point out 
still that, you know, fraud and these kind of scams are out 
there now at the back end in the sense that I think one of the 
testimony we heard earlier today offered an example of a help 
line that is very similar to the HOPE line that we have, and it 
is called www.hopenowusa.com. It sounds a lot like the HOPE 
Alliance number. It is nothing to do with the HOPE Alliance 
number, and they have been found to have been, you know, in the 
zone of these predatory practices and saying, ``Oh, okay. We 
will take your loan,'' and these folks are vulnerable to that.
    So you know, scams are out there on the front end, but we 
are seeing them still in this sort of zone right now as people 
are trying to get legitimately. We talked about those families 
that do take the steps to try to reach out and get help can 
oftentimes find that there is fraud at the very end.
    I just want to make sure, and it is not just because we 
represent a network of community based organizations, but you 
really want to focus on those types of outlets for recourse for 
help in these communities where people are trusted and 
accredited, you know, community based organizations that are 
going to be able to reach out and work with those individuals 
or families that need that help because it is rampant in terms 
of what we are seeing now because every is seizing on any type 
of scam idea that is out there, and we are seeing it now in 
terms of how these sort of help lines are being established.
    Mr. Serrano. Mr. Stinebert.
    Mr. Stinebert. On tax anticipation loans, because we have 
members that do those, and most of the ones that I have talked 
with that do them only do them because they do tax preparation 
work, and they would not get anyone to do their tax preparation 
work if they did not offer those loans.
    We have a current chairman of the board who made the 
remark, ``We would like to get out of the business entirely and 
just do tax preparation, but if I did that, we would never have 
anybody come in for tax preparation.''
    So it is----
    Mr. Serrano. But he had them coming in before.
    Mr. Stinebert. What I meant to say is if there is ever an 
area, I mean, they are gaining like two to three weeks on their 
money. It really is crazy that people would demand that type of 
a loan to gain two or three weeks on their funds, but it is 
being done by millions of people, and the whole area of 
education, once again, is just key to stopping refund 
anticipation.

                        TAX PREPARATION SERVICES

    Mr. Serrano. Okay, but here is where I am going to 
disagree. As this map shows, unfortunately, I have hardly any 
banks in my district, and it saddens me personally because I 
started out as a banker. I worked 12 years for Manufacturer's 
Hanover Trust, and when I did, there was a bank on 138th Street 
near Willis Avenue, for those of you who know the Bronx, and 
across the street was Bankers Trust, and down the block was 
Banco Popular, and Ponce de Leon Savings and Loan was somewhere 
else. And then you had another branch for each one of these on 
149th Street and 161st and Yankee Stadium in the Sombi area. I 
mean banks were all over the place.
    In fact, if you misbehaved they would send you to the other 
branch. You know, that was not as fun as the other branch, you 
know. Coney Island was big.
    But now there are no banks. Yet there are these tax 
preparers. I remember ten years ago, 15 years ago, they were 
full of people waiting in line because these folks are not 
going to go to some accountant downtown. They do not have 
access to them, nor can they afford them.
    So the suggestion that if they stop giving out these loans, 
people would stop going to them, I do not buy that, not from 
you, not from them, because where are they going to go? To Park 
Avenue or Madison Avenue for a big accountant? No, they are 
going to go to the same place. It is just that they have found 
a way to get 600 percent interest rates on them.
    And I will tell you, I know these things are covered by 
laws, but if I could just waive this and get rid of something, 
it would be the ability of these folks to do that. And your 
point on the Earned Income Tax Credit, you are right. That is 
hitting the American taxpayer because this is a program, a 
great program, where some folks who pay taxes assist folks who 
are hurting, to get some money.
    So when you scam them, you are hurting me. This is not 
money that we printed somewhere. This is money that I pay, that 
you pay so that someone else could be helped. You know, it is 
like stealing from Medicaid. It is no different in my opinion, 
you know.
    Mr. Calhoun. Mr. Chairman, on that concern.
    Mr. Serrano. Sure.
    Mr. Calhoun. We have been involved in this. We have worked 
in trying to limit and reduce these refund anticipation loans, 
particularly when they are targeted to Earned Income Tax Credit 
taxpayers. I think this is what Chris is referring to because 
we have heard this in our negotiations with them.
    For example, a household would say that if they 
unilaterally stop this, it is not that the families would quit 
going to tax preparers, but they would go down the street to 
Jackson Hewitt, for example, if Jackson Hewitt kept offering 
the refund anticipation loans.
    And so it is a situation and there are similarities, 
parallels here with the mortgage industry where in the absence 
of almost any regulation, I mean, the mortgage world 
particularly at the rich nation level is almost the Wild Wild 
West over the last five years.
    In the absence of any regulation, the worst actors drag 
down the whole market. Not only do they disadvantage borrowers. 
They have an unfair advantage over those lenders who try to act 
responsibly.
    For example, we had lenders, one of the leading ones, who 
stated, ``Do not pay yield spread premiums to your brokers. It 
creates a conflict of interest and causes you to pay more than 
you should for your loan.''
    Well, the brokers came to originate three-fourths of the 
subprime loans, and the broker said, ``Fine. We will just send 
our loans down the street to a competitor,'' and so that lender 
had to eventually reverse their policy and start paying these 
big yield premiums to compete with the other lenders who were 
paying them.
    So if you do not set some floor of reasonable consumer 
protections, education is critical, but as several people have 
said, it is necessary but it is not sufficient. It is not 
enough. This is a very complex area. There need to be some 
substantive ground rules there that protect both borrowers and 
the responsible lenders.
    Mr. Serrano. I am going to wrap up in a couple of minutes.

                           SUBPRIME MORTGAGES

    Mr. Jost, what specifically does your group do to deal with 
the subprime issue?
    Mr. Lobo Jost. On the mortgage side?
    Mr. Serrano. Yes.
    Mr. Lobo Jost. Specifically, we do a lot of outreach and 
referrals and intake in terms of homeowners that are current 
homeowners who have already fallen behind. We try to connect 
them with counselors, although like I said, by now there are 
too few counselors to connect them with, and also legal 
services.
    And we are also working on a number of ways to bring down 
other costs of owning a home because the mortgage side is just 
one part of it. There are all of the other costs associated 
with owning a home or have gone up. So we are working on like 
water and sewer issues. We are working on weatherization with 
the Northwest Bronx Coalition to try to get more people to 
bring down their energy costs as well.
    But specifically with the subprime in our neighborhood, we 
are doing outreach and speaking with folks and organizing 
events to bring people together to talk, and we will bring in 
lenders. We are organizing a homeowner affair coming up next 
month, and we are bringing in one of the banks that is offering 
SONYMA products, which is the New York State Mortgage 
Association, and they are products that help keep people in 
their homes.
    And then through NEDAP and such and some other groups, we 
do more organizing work, I would say, and advocacy.
    Mr. Serrano. All right. I thank you all. This has been 
painfully fascinating. Painful because we are not discussing 
something nice, but it is fascinating. You have given us a lot 
of good information, and we will all try to work together as 
Congress moves along to try to deal with this issue, and let's 
just hope that the picture is not as bleak as we all believe it 
is and that it can get better as we go along.
    So I want to thank you. You have been a great panel. It 
sounds like a TV show, a great panel, and we thank you for your 
service.
    And for anybody who is here, that adjourns the meeting.

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                           W I T N E S S E S

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Baish, M. A......................................................   422
Calhoun, M. D....................................................   239
Carnahan, Robin..................................................   418
Chatfield, W. A..................................................   413
Cherecwich, Paul, Jr.............................................   401
Davidson, D. D...................................................     1
Eaves, Joseph....................................................   441
Gambrell, Donna..................................................   239
Gideon, John.....................................................   545
Greenberg, Sally.................................................   530
Guinane, Kay.....................................................   476
Hacker, G. A.....................................................   515
Hager, M. H......................................................   506
Hillman, Gracia..................................................     1
Hunter, Caroline.................................................     1
Hurley, C. A.....................................................   510
Irons, J. J......................................................   437
Kelley, C. M.....................................................   444
Koop, C. E.......................................................   504
Ledbetter, Felecia...............................................   425
Lewis, Matt......................................................   455
Lobo Jost, Greg..................................................   239
Matthews, Jeff...................................................     1
Maves, M. D......................................................   541
Moore, B. J......................................................   487
Murguia, Janet...................................................   239
Parnes, Lydia....................................................   239
Rodriguez, Rosemary..............................................     1
Rymer, J. T......................................................   396
Stinebert, Chris.................................................   239
Urahn, S. K......................................................     1
Vargas, Arturo...................................................     1
Waldrop, Chris...................................................   512
Weiser, Wendy....................................................     1
White, Lee.......................................................   430











                               I N D E X

                              ----------                              --
--------

               Election Administration--February 27, 2008

                                                                   Page
Chairman Serrano's Opening Statement.............................     1
Mr. Regula's Opening Statement...................................     2
Panel 1:
    Rosemary Rodriguez's Testimony...............................     4
    Caroline Hunter's Testimony..................................     5
    Gracia Hillman's Testimony...................................     6
    Donetta Davidson's Testimony.................................     8
    Improving Election Operations................................    25
    Ballot Concerns..............................................    26
    Transparency of EAC Research.................................    27
    2006 Election Review.........................................    28
    Poll Workers.................................................    28
    Absentee Ballots.............................................    29
    State and Local Election Preparation.........................    30
    Developing New Voting Systems................................    32
    Paperwork Reduction Act......................................    33
    Military and Overseas Voters.................................    33
    Voter Fraud and Intimidation Report..........................    35
    State Funding under HAVA and State Spending..................    43
    IG Investigation into Voter Fraud and Intimidation Report....    44
    Voter Verification...........................................    46
    Reliability of Electronic Voting Systems.....................    48
Panel 2:
    Wendy Weiser's Testimony.....................................    53
    Susan Urahn's Testimony......................................    69
    Arturo Vargas' Testimony.....................................    77
    Jeff Matthews' Testimony.....................................   128
    Discrimination Against Minority Voters.......................   134
    Poll Worker Training.........................................   135
    Voter Fraud..................................................   136
    Voter Intimidation...........................................   186
    Voter Registration...........................................   187
    Poll Worker Recruitment and Training.........................   188
    Mobile Voter Population......................................   189
    Online Election Activities...................................   190
    HAVA Funding.................................................   191
    Portable Voter System........................................   192
Questions for the Record:
    Chairman Jose'1 E. Serrano...................................   196
    Ranking Member Regula........................................   223
    Mr. Hinchey..................................................   230
    Mr. Bonner...................................................   237
    Housing Affordability........................................   365
    Mortgage Servicing...........................................   366
    Multiple Family Homes........................................   367
    Refund Anticipation Loans....................................   367
    Tax Preparation Services.....................................   369
    Subprime Mortgages...........................................   371
Questions for the Record for the Federal Trade Commission:
    Chairman Jose'1 E. Serrano...................................   373
    Ranking Member Regula........................................   379
Questions for the Record for the Treasury Department:
    Ranking Memer Regula.........................................   383

 Consumer Protection in Financial Services: Subprime Lending and Other 
                Financial Activities--February 28, 2008

Chairman Serrano's Opening Statement.............................   239
Mr. Regula's Opening Statement...................................   241
Panel 1:
    Director Gambrell's Testimony................................   242
    Director Parnes' Testimony...................................   248
    Treasury's Office of Financial Education.....................   283
    Predicting the Housing Crisis................................   284
    Definition of Subprime Mortgages.............................   285
    Impact of Subprime Mortgages on Credit Markets...............   286
    Consumer Education...........................................   287
    The CDFI Fund and Subprime Mortgages.........................   288
    Reasons for Foreclosures.....................................   289
    Educating At-Risk Homeowners.................................   290
    Scope of the Problem.........................................   291
    Bankruptcy Legislation.......................................   292
    Counseling and Outreach......................................   294
    Law Enforcement..............................................   295
    Mortgage Disclosure Reform...................................   296
    Scope of the Problem.........................................   296
    Home Owner's Loan Corporation................................   297
    Servicemember Loans..........................................   298
    Limitations of HOPE NOW Initiative...........................   299
    FTC v. Mortgages Para Hispanos...............................   300
    Speculators..................................................   301
Panel 2:
    Michael Calhoun's Testimony..................................   303
    Janet Murguia's Testimony....................................   319
    Chris Stinebert's Testimony..................................   331
    Greg Lobo Jost's Testimony...................................   344
    Wall Street..................................................   357
    Rating Agencies..............................................   358
    Steering Practices...........................................   358
    HOPE NOW Program.............................................   359
    Steering Practices...........................................   360
    Financial Literacy...........................................   361
    Judicial Modifications to Mortgage Loans.....................   361
    Tax Credits for Homebuyers...................................   364
    Stabilizing the Housing Market...............................   365

                            Public Testimony

Court Services and Offender Supervision Agency...................   388
Federal Deposit Insurance Corporation, Office of Inspector 
  General........................................................   396
IRS Oversight Board..............................................   401
Selective Service System.........................................   413
Missouri Secretary of State......................................   418
American Association of Law Libraries............................   422
Coalition To Save Our Schools....................................   425
Investment Company Institute.....................................   426
National Coalition for History...................................   430
National Humanities Alliance.....................................   437
National Telecommunications Cooperative Association..............   441
National Treasury Employees Union................................   444
OMB Watch........................................................   455
Shape Up America!................................................   487
Voters Unite!....................................................   545